Nature and Methods of Economics 2: Graphing for Macroeconomics Fall 2013

Visual Representation  Economic information is usually accompanied by a graph, so very nearly any economic concept in this class has a graphing aspect  Economic analysis is dependent upon models, simplified descriptions of real situations – so most graphs depict the relationships between two variables (holding everything else constant)

 Let’s review some basic graphing concepts…

Two-Variable Graphs  Movement along the x- and y-axis depicts the causal relationship between the two variables

Pair and Share  What is meant by independent variable ?  What is meant by dependent variable ?  Define horizontal intercept and vertical intercept.

General Graphing Conventions  The independent variable is on the horizontal axis; the dependent variable is on the vertical axis  A line on a graph (made up of independent points) is called a curve, regardless of whether it is curved or straight

Positive and Negative Relationships  When two variables have a positive relationship, an increase in one results in an increase in the other  When two variables have a negative relationship, an increase in one results in a decrease in the other

Slope  Slope demonstrates how sensitive the dependent variable is to changes in the independent variable.  Slope can be positive, negative, constant or variable (increasing or decreasing).

Pair and Share  Draw and label a linear relationship and a nonlinear relationship. Describe the slope of each line.  Draw and label a positive relationship and negative relationship. Describe the slope of each line.

Horizontal and Vertical Curves  In a horizontal curve, the y variable never changes – so the slope is 0  In a vertical curve, the x variable never changes – so the slope is infinity  In both cases, there is no causal relationship

Increasing/Decreasing Slope, Minimums and Maximums

Other economic data graphs 1. Time-series graph

Other economic data graphs 2. Scatter diagram

Other economic data graphs 3. Pie chart

Other economic data graphs 4. Bar graph