I have written a post for introducing why mathematics is needed for learning economics. The post is mainly a record of my response to two science-stream students whom I encountered during a past Orientation Day. Therefore, I made use of the math that science students should have learned in high school. This includes some basic calculus that enables us to identify the maximum value of a function. I want them to know why finding the maximum is useful in economics.
In another O-Day, I encountered other students who are not from science stream. So, they do not know calculus. But I still want them to know why math is needed in (university-level) economics. What can I do? Well, I decide to use money multiplier to explain.
Most high-school students should have learned a simple version of money multiplier. So, I can explain: if the central bank gives $100 to the public and the public deposits the $100 in commercial bank, the latter will lend, for example, $70 for earning interest income. But if the businessman who borrows the $70 from this bank deposits the $70 also in a bank (the same or another bank), there is another deposit of $70 created. With the $70 deposit, the bank can lend, say again, 70% of this money out, amounting to $49 to someone. Similarly, this someone will deposit the $49, and banks can make another 70% of $49 as loan. As such, many more new deposit is created. Let us count: in the first step, $100, second step $70, third $49, and so on and so on. High-school students should have learned the way to calculate the infinite geometric series. Thus, $100+$70+$40+... = $100[1+0.7+(0.7)(0.7)+(0.7)(0.7)(0.7)+...] = $100/(1-0.7) = $333.33.
In this case, both the multiplier effect and the math involved - sum of infinite geometric series - are something that students should have learned in high school. Hence, students, from science stream or not, should be able to understand. Of course, university economics frequently uses calculus while geometric series is not so often involved. As an example to illustrate the relation between math and economics, this is less ideal when compared to the example of calculus. Nonetheless, geometric series is also not rarely used. It is often applicable in economic forces involving chain effects while chain effects are also an important issue in economics. For example, economists mention not only money multiplier effect but also fiscal multiplier effect. The latter is also related to chain effect, which means the first event will trigger the second event, and then third event, and so on and so on. This is true for money creation and this is also true for fiscal spending. Although high-school economics students often have not learned fiscal multiplier effect but they will in university. At that time, they can also appreciate better why math is so important to economics.
