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Module 2: Symbols, Formulas and Rules Alan Freeman
Document1 17 of 25 3/30/2014 8:33 PM
DIVIDING FRACTIONS
The rule is: turn the second fraction upside down and change the division sign to a multiplication
sign
2
3
4
5
2
3
5
4
2 5
3 4
= =
In economics you often have to divide by a decimal, for example
100
0 5 .
Multiply both the top and the bottom by 10 to remove the decimal, then do the division
100
0 5
100 10
0 5 10
1000
5
200
. .
=
= =
If there are two figures after the decimal point, multiply by 100 ... and so on
ADDING FRACTIONS
Adding and subtracting fractions are dealt with in the next section on algebra, because they are
easier to understand with symbols than with numbers.
HOW THE RULES OF ARITHMETIC CARRY OVER TO ALGEBRA
Every rule of arithmetic has its counterpart in algebra. The same rules work, if you put a letter in
place of any number.
The minus rule: (x) = +x
+(x) = x
(+x) = x
x (y) = +xy
x/y = +x/y
The brackets rule: 2(x+y) = 2x + 2y
(x + y)/2 = x/2 + y/2
More complex brackets (2x + 3) (y 4)
= 2x(y 4) + 3(y 4)
= 2xy 4x + 3y 12
ADDING AND SUBTRACTING FRACTIONS
This is the most complex operation of all, and a lot easier to write using algebra than describe in
english:
Module 2: Symbols, Formulas and Rules Alan Freeman
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a
b
c
d
ad bc
bd
+ =
+
example
2
3
5
7
2 7 5 3
3 7
+ =
+
This may look a lot simpler than the rules often taught in school, which involve Least Common
Multiples, Common Factors, and so on. It is. Adding fractions is actually very simple, but it can give
you quite large multiplications to carry out. All the business with Least Common Multiples is simply
designed to cut out the work of multiplication. Unfortunately it makes the rules more complicated.
If you are happy with the method you were taught at school, use it. If not, the method above is
the simplest to remember, and it will always work
You often have to add a number to a fraction, like
100 + 300/7
A whole number is like a fraction where the denominator (the number underneath) is 1
100
300
7
100
1
300
7
100 7 300 1
1 7
+ = + =
+
= 1000/7
CANCELLING COMMON FACTORS
You can always cut down some of the work of adding and multiplying fractions if you can cancel out
common factors. This is also easier in algebra than it is in arithmetic The rule says that if the same
symbol or number will divide into both the top and the bottom of a fraction, then you can divide
through by it top and bottom and so eliminated it.
2a/3a is the same as 2/3 (divide top and bottom by a)
15/10 is the same as 3/2 (divide top and bottom by 5)
This rule is often more important in algebra because it can be used to simplify complex expressions.
Any common factor will do, even one in brackets.
for example
4 2 3
5 2 3
4
5
( )
( )
x
x
+
+
=
because it can be divided top and bottom by 2x+3
Caution: Cancelling only works when things are multiplied together.
A common mistake is
100
0 5
100
0 5
+
= +
G G
. .
Correct is to divide 50 into both terms on top:
100
0 5 0 5
20
0 5
20 2
. . .
+ = + = +
G G
G
If you make this mistake look at the section entitled 'splitting up fractions using the brackets rule' above and review
the computer tutorial on the distributive rule
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COLLECTING TERMS: THE BRACKETS RULE IN REVERSE
Often in algebra we get to a point where we cannot do any more arithmetic, but the expression
could still be simplified. The reason is fairly subtle: it is because we cannot arithmetically combine
two different symbols without knowing their value. This is different from arithmetic where we can
always reduce any expression to a single number. Thus
3 ( 4 + 5)
3 4 + 3 5
12 + 15
27
but with x and y in place of 4 and 5:
3 ( x + y)
3x + 4y
and that is as far as it goes.
However, sometimes the expression can be simplified further if there is more than one term in the
same unknown. We can add x to 2x to get 3x, or take 4x from 3x to get x.
The usual practice is to group together all terms which have the same unknown by reordering the
terms in the expression. Look at this problem:
Simplify 3x + 4y 2x + 4
Begin by grouping the terms with an x in them
(3x 2x) + 4y
There is then a rule which says we can reverse 'expanding the brackets' by taking the unknown
outside the brackets:
(3 2) x + 4y
Next take 2 from 3 to give 1
1 x + y
Final answer x + y
SUBSTITUTION: TAILOR-MADE FOR MACROECONOMICS
You can now begin work on the case study. You are told that
Module 2: Symbols, Formulas and Rules Alan Freeman
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Y = C + I + G
C = 100 + 0.7Y
I = 10
G = 20
Systems of several equations like this are typical of neo-classical macroeconomics and the theory of
income determination. The method best suited to solve them is called substitution.
At school you will probably have prioritised another method for solving simultaneous equation
systems, called elimination. You will revisit this later in the course. It is a more general method;
however substitution is much better suited to the equations that are thrown up by neoclassical
macroeconomics.
The basic rule of substitution is this: whenever you find a single symbol on the left of an equation
(for example G = 20), then wherever you find this symbol it can be replaced (substituted for) by what
you find on the right. So wherever you find G you can substitute 20.
You can immediately make two simplifications. You are given a value for I, and for G. Therefore you
can write these two values wherever you see I or G in the formulae above. Each time you do this you
eliminate one of the symbols. When you solve an equation in algebra, the first thing you do is start
eliminating symbols, until ideally you have only one symbol, and your expression tells you its
value.
First substitute for I. This gives
Y = C + 10 + G
C = 100 + 0.7Y
G = 20
Next substitute for G. This gives
Y = C + 10 + 20
C = 100 + 0.7Y
Finally you can carry out a bit of arithmetic to get
Y = C + 30
C = 100 + 0.7 Y
Now what do you do? The trick is to remember that substitution also applies when C stands for an
expression and not just a number.
The second equation tells you that C is 100 + 0.7Y. This can be substituted for C in the first equation
to give
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Y = 100 + 0.7Y + 30
THE RULES FOR SOLVING EQUATIONS
You now have an equation in Y. To solve it you have to use rules which are unique to algebra. They
have no equivalent in arithmetic. The aim of nearly all algebraic manipulation is
First, to eliminate all unknown symbols except one, which should figure in just one
equation (like the one above)
Then, to fiddle around with the equation until the unknown is on one side of the = sign,
and everything else is on the other. The result is a formula with which we can calculate
the last remaining unknown. In short, you aim to get something like:
Y = (an expression with only numbers in it)
The procedure is mechanical. Like the rules for arithmetic, you should learn it because you will use it
again and again. If you have trouble with it you must practice until you can do it, come to the
revision class and/or work through the computer tutorials in basic arithmetic.
If you are learning to drive and you can't steer, you won't be able to drive. Manipulating linear
equations (equations like these) is the same as steering. It takes practice; everyone can learn it, but
you have to learn it or nothing else will make sense.
THE 'TAKING ACROSS' RULES
There are two new rules to learn. These rules only apply to equations. They are:
'taking across' terms which are added or subtracted
'taking across' multipliers or divisors.
Taking across terms that are added or subtracted.
You can take any term on either side of an equation which is being added or subtracted, and move it
to the other side, provided you change its sign.
So 2x + 3 = 4 x
can be turned into 2x + 3 4 = x
or 2x + 3 = 4 x
can be turned into 2x + x = 4
This rule takes you one step further with the case study. You can start collecting all the terms that
involve Y on the left, and all the numbers on the right. From
Y = 100 + 0.7Y + 30
add the numbers up Y = 130 + 0.7Y
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take terms in Y to the left Y 0.7Y = 130
simplify (see box) 0.3Y = 130
Tip on simplifying: the move from Y 0.7Y to 0.3Y is often puzzling. It involves a typical trick which
recurs again and again in this type of problem. You have to remember that Y is the same as 1 Y. The
expression really reads
1 Y 0.7 Y
You treat this exactly as if it were, say, 3Y 2Y , which is (3 2)Y =Y. It becomes
(1 0.7) Y = 0.3Y
If you have trouble with any of these steps, look back to Collecting terms - the brackets rule in
reverse, read the box on simplifying just above, and work through the computer tutorial on solving
equations.
Final step: Taking across multipliers or divisors
The last rule is similar to taking across added or subtracted signs. It is sometimes called 'multiplying
through' or 'dividing through'. It says that we can divide both sides of the equation by the same
thing, or multiply them both by the same thing. This is used to reduce the left hand side expression
0.3Y to a plain Y and solve the equation:
divide by 0.3 Y = 130/0.3
Y = 1300/3 = 433
1
/
3
The very last step is now to find the value of C. You get this by substituting yet again. This time we
take the value of Y you just worked out and putting it back into the formula for C which you already
have, namely the consumption function
C = 100 + 0.7 Y
substitute Y = 1300
1
/
3
C = 100 + 0.7
1300
/
3
=100 +
7 130
/
3
= 100 +
910
/
3
= 100 + 303
1
/
3
= 403
1
/
3
Fractions, decimals and accuracy
You may have blanched at the fractions in the last few lines. You can use a calculator if you prefer.
You do lose something, however. A fraction is exact, but a decimal may not be. Your calculator will
represent 1300/3 as 433.3333333, which you probably keep to two decimal places as 433.33. Now,
if you substitute this back into the consumption function you lose still more accuracy. Make sure,
therefore, that you keep enough decimal places so that after a sequence of substitutions, you don't
start to go seriously adrift. A rule of thumb is: while you are still doing intermediate calculations,
keep two extra places of decimals.
Module 2: Symbols, Formulas and Rules Alan Freeman
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A better procedure is to use fractions; it is tedious but it is part of practicing the basic arithmetic
operations which should become second nature to you.
WAYS TO SKIN A CAT
There is no rule that says you have to begin by substituting for Y. You could have got the same
results another way, by substituting for Y in the consumption function (after substituting for I and G
to get Y = C + 30). This gives
C = 100 + 0.7(C + 30)
Now you can begin to see why it is so important to be able to expand brackets. When substituting a
whole expression, like C + 30, you should always put brackets round it: if we had written
C = 100 + 0.7 C + 30
The result would be wrong. The whole expression which stands where Y used to stand must be
multiplied by 0.7 and not just part of it. Expanding brackets now gives
C = 100 + 0.7C + 21
= 121 + 0.7C
Now collect terms in C: C 0.7C = 121
Simplify (10.7)C = 121
0.3C = 121
Divide through by 0.3 C = 121/0.3
= 403
1
/
3
It is a good idea, if there is more than one way to solve an equation, to do it two different ways and
make sure you get the same answer.
LAST OF ALL: CHECK THE WORK
In school, you are often made to feel that you have to prove you can do mathematics by producing
answers quickly, in your head, and generally demonstrating your prowess.
In any real situation where mathematics is used this is a completely useless skill. Far more important
is getting the right answer regularly and without fail. An engineer who works out how to build a
bridge in half the time is not much use if the bridge falls down.
There are many reasons for learning standardised procedures in calculation. boring though it may
seem. It helps to learn because of the practice it gives; it makes for collective work, because other
people can follow what you were doing; it makes for good revision, because you can follow what you
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were doing, six months later. Most of all, however, standardised procedures give a better guarantee
of getting the answer. And the last part of a standardised procedure is to check your answer.
In this course, if you fail to check your answer in a situation where it is possible to do so, you will lose
marks. You will also get marks for checking your work, even if the answer was wrong provided
your check has shown that it is wrong.
You cannot always check your answers, but when solving equations you can: by substituting the
answers you got back in the original equation.
In this case the solutions are
C = 403
1
/
3
Y
= 443
1
/
3
and these must be substituted, along with I = 10, G = 20 in the two main equations
C = 100 + 0.7 Y (4)
and Y = C + I + G (5)
Substituting in (4) 403
1
/
3
= 100 + 0.7 443
1
/
3
=
100 + 0.7
1300
/
3
= 100 +
910
/
3
= 100 + 303
1
/
3
= 403
1
/
3
Substituting in (5) 443
1
/
3
= 403
1
/
3
+ 20 + 10
USING FORMULAS TO PRODUCE MORE FORMULAS
What happens if government expenditure changes? Our last calculation is no longer valid. However,
you can of course repeat it with the new value for G, say
G = 15
The same rather laborious calculation will finally give
Y = 411
1
/
3
Now suppose you are asked to repeat it again with G=10. By now it is getting a trifle tedious to
repeat the same calculation each and every time. But there is a quicker way. You can use the original
formulae to produce a formula for Y before we know what G is. Then you can use this formula to
calculate Y quickly from G and I by substituting.
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The procedure is to 'solve' the equation in the same way as when you know what G and I are:
C = 100 + 0.7Y
Y = C + G + 10
Y = 100 + 0.7Y + G + 10
Y = 100 + 0.7Y + G + 10
Y 0.7Y = 100 + G + 10
0.3Y = 100 + G + 10 = 110 + G
Y = (110 + G )/0.3
Y = 1100/3 +G/0.3 = 366
2
/
3
+ G/0.3
This is a new formula which tells us how to calculate Y from G. We can use it to solve our original
question by substituting G = 15 to give
Y = 366
2
/
3
+ 45 = 411
2
/
3
But it is much more useful than this: we can now use it to calculate Y for any given value of G,
without having to run through the entire tedious business of solving the equation. We have saved
ourselves the labour time of solving the equation each and every time the level of government
spending changes.
In the next unit we can see that still more has been achieved: we have established a relation
between government spending and national income. We shall shortly start using this relation to
determine the effect of government policy on employment.
REFERENCES
Keynes, John Maynard The General Theory of Employment, Interest and Money Pub:McMillan
This is the work in which Keynes systematically expounded his 'new' doctrine and where you will
find his theories of consumption, liquidity preference and investment behaviour
Hicks, J. R. Mr Keynes and the Classics: a Suggested Interpretation. Econometrica 5:147-159.
1937
This article was the foundation of what has come to be known as the 'neo-classical synthesis'
which has become the standard mathematical interpretation of Keynes's theory.