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EA-II-P09
(PGDM 2009-2011: Term-II)

Macroeconomics Analysis and Policy


Instructor: Biswa Swarup Misra
Room No. 251, Administrative Building
Xavier Institute of Management
E-Mail: biswa@ximb.ac.in


Objective:

Having dealt with the principles guiding decision making of the individual economic agents in your EA-I course, we would shift our focus to discuss the macro economic factors, which influence business outlook in this course. Every Business operates with an outlook. The exposure to the working of the macro economy helps one to shape the future outlook of business.

Macroeconomic concepts involve abstractions as one deal with economic aggregates such as GDP, Inflation, and Exchange rate etc. Though abstract, we may be very much conversant with some of the macro economic concepts in our day-to-day life or can relate to them very easily. For instance, consider the case of the inflation, a macro economic aggregate. Inflation is measured by the rise in the price index. We do not observe the price index (an abstraction), though we can observe the prices of individual items such as price of a candle, watch etc. which contribute to the price index. Nonetheless, many people (especially the salaried class) can easily relate to the price index!

We would be primarily interested in three macroeconomic parameters i.e. growth, employment and inflation. The discussions in the class would be oriented to appreciate the factors governing the above three parameters.

Coverage of this course would include discussion of macroeconomic fundamentals, various macroeconomic policies (Monetary and fiscal), policy options under alternate macro economic scenario, Inflation - Unemployment tradeoff, open economy macroeconomics and exchange rate policies. The discussion will be centering round the Indian context so that participants can relate what is covered in the class room to what is happening around them in the real life situations and appreciate the subject of discussion.

Further details about the Course can be seen from the Session Plan.

I welcome you to this course.

Session Plan

Session-1Basic Macroeconomic concepts: Growth, Inflation, Unemployment
Kinds of Macroeconomic Policy:
Monetary
Fiscal
Exchange rate
Five Principles of Macroeconomics
a) A country’s standard of living depends on its ability to produce goods and services
b) Society faces a short run tradeoff between inflation and unemployment
c) Prices rise when government prints too much of money
d) Government may sometime improve market outcomes
e) Trade can make everyone better off
Reading
Principles of Economics - Mankiw (4th edition) Chapter- 1
Session-2Schools of Macroeconomic Thought
Mercantilism
Classical
Marxian
Neoclassical
Keynesian
Neo Keynesian
New Classical
New-Keynesian
Supply Side economics
Reading
Principles of Macroeconomics - Willis L. Peterson
Handout
Session-3-4Measuring the Value of Economic Activity
Concepts of GDP, GNP, NDP, NNP
Nominal vs. real GDP
GDP at maket price and factor cost
Interrelations amongst different concepts of GDP
GDP as a measure of economic welfare
Reading
Principles of Economics - Mankiw (4th edition) Chapter- 23
Macroeconomics-Oliver Blanchard (4th edition)
Session-5Consumption function
The concept of multiplier
The algebra of Multiplier
Multiplier in presence of leakages (taxes)
Reading
Principles of Economics - Mankiw (4th edition) Chapter- 23
Macroeconomics - Mankiw (6th edition)
Session-6Goods market
Aggregate demand and Determination of equilibrium output
Deviation from equilibrium and adjustments
Reading
Macroeconomics - Mankiw (6th edition)
Macroeconomics- Dornbusch, Fisher and Statrtz (9th edition)
Session-7Alternate characterization of goods market equilibrium: Saving-Investment equality vs. Equilibrium
Derivation of the IS Curve
Reading
Macroeconomics - Mankiw (6th edition)
Macroeconomics - Dornbusch, Fisher and Statrtz (9th edition)
Session-8Money Market
The theory of liquidity Preference
Derivation of the LM Curve
Reading
Principles of Economics - Mankiw (4th edition) Chapter - 34
Macroeconomics - Mankiw (6th edition)
Sessions 9-10Equilibrium in the short rum and impact of monetary and fiscal policy on short run equilibrium.
IS-LM model to aggregate demand curve
Reading
Macroeconomics - Mankiw (6th edition)
Session-11The Monetary System
The meaning and functions of money
Banks and the money supply’
Money Multiplier
Reading
Principles of Economics - Mankiw (4th edition) Chapter-29
Session-12Inflation:
Meaning and Measurement
The classical theory of inflation
Costs of inflation
Reading
Principles of Economics - Mankiw (4th edition) Chapter-24&35
Session 13&14Aggregate Supply
Models of aggregate supply
Sticky wage, Sticky Price and the Imperfect-Information models
Aggregate supply Curve- Shart run vs. Long run
From Aggregate supply to Philips curve
Movement along the shift curve vs. Shifts in the Philips curve: The role of Expectations
Reading
Principles of Economics - Mankiw (4th edition) Chapter-33
Macroeconomics - Mankiw (6th edition)
Session-15International Trade and Protection
Benefits of trade:
Absolute vs. Comparative advantage
Terms of trade
Types of restrictions on trade
Motives for protection
Protection and consumer welfare
Reading
Macroeconomics- Dornbusch, Fisher and Statrtz (9th edition)
Macroeconomics- Oliver Blanchard (4th edition)
Session-16 and 17Balance of Payments and Exchange rate
Current vs. Capital Account
Balance in the Balance of Payments
Exchange rates;
Fixed vs. Flexible
Dirty Floating or Managed Exchange rate regime
Purchasing power parity theory of exchange rate
Movement in Exchange rate and impact on Balance of Payment – Marshall Lerner Condition
J-Curve effect
Reading
Principles of Economics - Mankiw (4th edition) Chapter-31
Macroeconomics - Mankiw (6th edition)
Macroeconomics- Dornbusch, Fisher and Statrtz (9th edition)
Session 18 and 19IS-LM model in the open economy:
Effectiveness of monetary vs fiscal policy under different exchange rate regimes
The Mundell- Fleming model – Impossible Trinity
Reading
Macroeconomics- Dornbusch, Fisher and Statrtz (9th edition)
Macroeconomics –Mankiw (6th edition)
Session - 20Major macroeconomic policy debates
Reading
Principles of Economics - Mankiw (4th edition) Chapter-36

Evaluation Criteria Created By: Debasis Mohanty on 09/02/2009 at 09:21 AM
Category: PGP-I Doctype: Document

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