Measuring Industrial Adequacy for a Surge in Military Demand

An Input-Output Approach

by Michael D. Miller

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A major concern of the Department of Defense is the ability of industry to respond successfully to the surge demand for its output that might accompany direct or indirect U.S. involvement in an international crisis. This report provides a detailed description of a methodology, based on input-output analysis, which can be used to measure the effect on interindustry shipments of various hypothetical increases in Department of Defense purchases of crucial combat material. By combining these effects with sector output data, it is possible to isolate those lower-tier supplier sectors which appear potentially most vulnerable in terms of needing to devote a "large" percent of their total production capability to meet the surge. Finally, by comparing these potential vulnerabilities with published capacity utilization rates, a crude estimate is obtained of each supplier sector's ability to respond to surge demands. (See also R-2360.)

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