In 2009, the U.S. government offered financial assistance to its auto manu-facturers to help them survive a deep recession and a free fall in consumer demand for cars. The bailout was controversial in part because the government seemed to be choosing to support a particular manufacturing industry. The government response was that the aid package not only helped save the jobs of autoworkers but also preserved jobs in the many industries that supply parts to the automakers and that sell and service autos. This part of the U.S. economic stimulus program built on the idea that an injection of support into one part of the economy would move in a circular flow to the rest of the economy, starting with the strong inter-industry linkages between automakers and the other manufacturing and service sectors that supply its inputs.

In this chapter and the next, we explore the supply side of the economy as represented in a CGE model, emphasizing the linkages among industries through their demands for intermediate inputs and their competition for the factors of production. We start with an examination of the production data in the SAM. The activity column accounts of the SAM describe the inputs used in industries’ production processes. An activity's column is therefore much like a recipe because its lists all of the ingredients and the proportions used in making its product. Activity row accounts describe the use of industries’ outputs as inputs for other industries.