Monday, March 18, 2019

Drawing economic models on macOS with GraphSketcher (using free open source software!)

I didn't think blogging about university assignments from yesteryear would be popular; to use economic parlance, I thought the demand curve for my posts would be as flat as sales of Windows Phones. When I wrote my blog series about chess data structures in ANSI C89, I didn't think anyone would read it voluntarily, but my posts seem to have found a niche audience of CS students who have chess simulator assignments due the next day.

Today I've decided to write about economics. Anything economics posts I write should be timeless, because none of the questions or answers have changed in last 129 years since Alfred Marshall's Principles of Economics.

Marshall's Principles of Economics (1890).
Amazon did not exist in the year 1890 so students
had to purchase over-priced textbooks in person.

If you're an economics student, you're going to have to draw a lot of models. If you have a Mac, there's only one tool you need for drawing models: GraphSketcher. This is a free and open source tool that was originally designed by The Omni Group (the team behind OmniGraffle or "not quite Visio for Mac").

Download: GraphSketcher for Mac

Here are some tips for High Distinction success.
  • Don't use the graphing function in Microsoft Excel. You'll spend too much time trying to create the "correct" source data to generate curves, and you've only got till morning to submit your assignment.
  • Don't use Photoshop. You'll spend too much time messing around with layers, and trying to crack Photoshop.
  • Label your axis. Specify the unit of measurement too, e.g. Private spending ($ billions)
  • Work out the order of magnitude required to illustrate your point. In macroeconomics, the quantity of money at which you want to analyse curves is "large". You're not going to be able to analyse changes of private spending vs. real GDP at $500,000 to $600,000: you'll typically be working at the magnitude of hundreds of billions of dollars. Leave the microscopic $2 MR=MC magnitudes to microeconomics. Before you start drawing, calculate the order of magnitude that can illustrate your point, then figure out the quantities you need.
  • Use big dots and letters to draw attention to "before and after". Tell the story with your model. In the first example below, A is the normal level of private spending/real GDP. B is what happens when we private spending is reduced, and C is what happens when it's increased.
  • Use arrows to explainn the story. The lecturer/TA marking your assignment is a busy person: they are trying to trying to test whether you and 250 other students understand a particular economic model. They will spend one second looking at your graph to judge your knowledge. If private spending goes up, does this student have the first clue about what happens to real GDP? You may know the answer, but can you demonstrate this using only a graph? In the example below, it's clear that when (C+I)0 shifts upward to (C+I)2, this intersects GDP curve at a higher level. We indicate this with arrows that tell the story for us: an upward arrow for the (C+I) curve shift, and a right arrow for the real GDP shift.
  • Put a zero on your graph. No zero? One mark deducted!
I've uploaded some of my old macro graphs to get you started.
  • Aggregate expenditure/output approach [download]
  • Consumption Schedule graph [download]
  • Investment demand curve with shifts graph [download]
  • Investment demand curve graph [download]
  • Net Exports schedule graph [download]
  • Increases in price level graph [download]
  • Inflationary gap graph [download]
  • Built-in stability graph [download]

Aggregate expenditure/Output approach [download]
Consumption Schedule graph [download]
Investment demand curve with shifts graph [download]
Investment demand curve graph [download]
Net Exports schedule graph [download]
Increases in price level graph [download]
Inflationary gap graph [download]
Built-in stability graph [download]