Macroeconomic Policy in the Global Economy Issue Paper
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ITRN 503: Investment and Macroeconomics Auerswald
Professor Philip Auerswald
Session No. 1: Introduction to the Course
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 2
Today’s Class
• Course Organization and Mechanics • Math Review
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 3
Grading • Issue Paper: 30% • Midterm Exam: 15% • Final exam: 25% • In-class participation, including three one-paragraph response
papers: 20%
Course organization and mechanics
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 4
Course organization and mechanics
Evaluation of Issue Paper • Framing of the research question—Did you clearly define the
essential policy issue? • Quality of research— Did you make use of, and properly cite, the
relevant literature and data sources? • Logic of argumentation and clarity of expression—Does your memo
make sense? • Quality of analytic work and modeling—Did you use your data
carefully and effectively? • Overall creativity and thoughtfulness—Does your memo contribute
new insights?
The issue paper will count for 25% of your grade.
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 5
Course organization and mechanics
Final Exam • Final exam accounts for 25% of your grade. The exam will cover all material
covered in class, and all readings listed on the syllabus. It will be comprised of – 5-10 true/false questions; – 3 longer problems to solve; and – 1 essay
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 6
Data interpretation • ALWAYS, ALWAYS ask:
– Where do the data come from? – Who produced the figures? – To what period do the figures relate? – Are the data seasonally adjusted? – Will the data be revised? – Are indicators adjusted for inflation? – What do the categories of data stand for? (E.g. what kind of production
is included in manufacturing sector? – Varies along countries)
Course organization and mechanics
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 7
A Framework for Analysis • Establish the context • Lay out the alternatives • Predict the consequences • Value the outcomes • Make a choice
Course organization and mechanics
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 8
Philip E. Auerswald office: Arlington Founders Hall 632 Email (preferred mode of contact): auerswald@gmu.edu Tel (cell): 202-378-6438 office hours: Thursday 3:30-4:30PM
Arlington campus Founders’ Hall 664
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 9
Math Review
• Area • Slope • Exponents • BREAK • Derivatives • Overview of calculus: A worked example • Optimization
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Organization of material
Every concept • Why? • Mechanics • Example • Drill
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• Calculating profits • Effects of government policy like taxes, subsidies, price controls,
trade protection, etc. – Consumer and producer surplus. – Tax revenue / Costs of subsidy.
Why area as prep for ITRN 503?
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 12
Mechanics of area
AREA = BASE � HEIGHT = 2 in � 2 in = 4 in � in = 4 in2
HEIGHT = 2 in
BASE = 2 in
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 13
Mechanics of area
AREA = (1/2) � (BASE � HEIGHT) = (1/2) � ( 2 in � 2 in ) = (1/2) � ( 4 in � in ) = (1/2) � ( 4 in2) = 2 in2
HEIGHT = 2 in
BASE = 2 in
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Lecture #1 14
Area drill
Given that:
AB = 6 m
BC = AE = 8 m
CD = 6 m
ABCE is a rectangle.
ECD is a right angle triangle, right angle at C.
Calculate the area of ABDE.
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 15
Area drill: answers
triangle
(1/2)* (b*h) = (1/2) * (6 *6)
=1/2 (36)
= 18
rectangle
(b*h) = 8 * 6
=48
TOTAL = 48 + 18
= 66 m2
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 16
Area drill
Given that:
AB= 6 m
BC= 8 m
CD= 6 m
ABCE is a trapeziod.
Formula: ½(AE + BD)*AB
½(8 + 14)*6 = 66m2
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Lecture #1 17
• The concept if slope is at the heart of “marginal analysis”. • Slope is also closely related to the concept of elasticity. • Both are core component of microeconomics.
Why slope as prep for ITRN 503?
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 18
Mechanics of calculating slope
• The slope of a function y = f (x)
is a ratio
ΔΔ y
Δ x
=Rise
Run
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Lecture #1 19
Mechanics of calculating slope
y = 4x + 5 What does this function look like?
x y 0 5 1 9 3 17
(0,5 )
(1,9)
(3,17 )
In general, if the function is given by
y = mx + b
Then “m” is the slope and “b” is the y-intercept
Equation of a line
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Lecture #1 20
Slope drill
What is the slope of the function
100 x + 50 y = 400 ?
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Lecture #1 21
Why exponents as prep for ITRN 503?
• Rates of growth (e.g. compound interest) • Returns to scale • Taking derivatives
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 22
Why exponents as prep for PUBP720?
labor
# of cars assembled (Q)
Linear: y = mx + b
a <1 (ex. 0.5)
Exponent: y = mxa + b
# of cars assembled (Q)
labor
Diminishing MPL (e.g., congestion)
Increasing MPL (e.g., division of labor)
a >1
a = 1
EXCEL demoSo basically exponent is a math tool to capture nonlinear relationship.
MPL = 2
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 23
Mechanics of Exponents
numberx = number • number • number … (x times)
numberx • numbery = number(x+ y)
numberx / numbery = number(x - y)
number0 = 1
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 24
Mechnanics of Exponents
23 = 2 • 2 • 2
32 • 34 = 3(2+ 4)= 36
34 / 32 = 3(4-2)=32
(34 )2 =34*2=38
30 =100 =2450 = 1
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 25
1. 24 ·22 = 2?
2. 73 ·33
74 ·32 =?
3. ³ 54 ´2 = 5?
Exponents drill
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Lecture #1 26
Exponents drill: answers
1.
24 ·22 = (2 ·2 ·2 ·2) · (2 ·2) = 24+2
= 26
2.
73 ·33
74 ·32 =
73
74 · 33
32
= ³ 73¡4
´ · ³ 73¡2
´
= 7¡1 ·31
= 3
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3. ³ 54 ´2 = 54 ·54 = 54+4 = 58
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 27
A derivative is just a slope
Di®erent ways to express the formula for the slope of a line:
rise
run = change in y
change in x = ¢y
¢x ¼ dy
dx
In other words, a derivative is just a slope, where both dy and dx are restricted to being
infinitesimally small.
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 28
Why derivatives as prep for PUBP720?
• Economic decision-making is about comparing the value of the next unit of something with its cost:
benefit of another song dowloaded from Itunes > $0.99 ? If so, then buy it.
If not, don’t.
• A decision that compares the costs and benefits of a small increase in the level of an activity is called a decision “at the margin.”
• MARGINAL ANLAYSIS—the study of decision-making at the margin— is fundamental to microeconomics.
• From a mathematical standpoint, slope is the concept that expresses the notion of a cost or benefit “at the margin.”
An ornithological motivation… 28
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ITRN 503: Investment and Macroeconomics Auerswald
Lecture #1 29
Optimization with a single variable: Bagel shop
derivative = slope = 0
P ro
fit (π
)
# wage hours / day
π = f(q)= 1000 q — 5 q2
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