Macroeconomics

POST GRADUATE PROGRAMME IN MANAGEMENT

AY 2015-16 TERM: II

TITLE OF THE COURSE: MACROECONOMICS CREDITS: 4 _______________________________________________________________________________ Name of the Faculty Faculty Block/

Room No. Email Telephone

Number Prof. Dipayan D. Chaudhuri A 101 [email protected] +91-731-2439511 Prof. Ganesh Kumar N B 208 [email protected] +91-731-2439552 Prof. Indrajit Thakurta C 211 [email protected] +91-731-2439595 Prof.Subhasankar Chattopadhyay

B 205 [email protected] +91-731-2439549

COURSE DESCRIPTION The course covers macroeconomic theory and its applications particularly in the Indian context. The main theoretical framework for the course will be IS-LM and Aggregate Demand - Aggregate Supply. We begin the course with understanding national income accounts. We then set up with simple models of national income determination and relax the assumptions to set up more complex models. These models are necessary to understand and analyze the effects of fiscal and monetary policy on the economy. The course will help participants to develop analytical skills to understand the monetary policy announcements of the central banks and broad fiscal policies of the government and their impact on the economy. In the context of globalization of economies , we will discuss the linkages of national economy with global economy and explore interdependencies among countries. We have allocated 5 out of the total 20 sessions for international linkages of national economy. COURSE OBJECTIVES The course aims at helping participants understand the complex macroeconomic environment, which confronts business. The participants will be able to understand the rationale behind the economic policy announcements and anticipate policy changes. The course will equip participants with analytical tools to decipher the effects of economic policy announcements, particularly Monetary and Fiscal policy, on crucial macroeconomic factors such as interest rate, income, inflation etc. PEDAGOGY/TEACHING METHOD: The pedagogy will be predominantly lectures and classroom discussions. Applications of macroeconomic theory and case studies are discussed to reinforce understanding of concepts. TEXT BOOK: Dornbush, R., Fischer, S. & Startz, R. (2012), Macroeconomics, New Delhi: Tata McGraw-Hill. (Hereafter referred to as Dornbush (2012).)

LEARNING OUTCOMES Expected Learning Outcomes and Associated Measures

At the end of the course student is expected to accomplish the following learning outcomes (CLO). Alignment of CLO with the Programme Level Goals & Objectives and Assessment of the learning outcomes of the course is presented below.

EVALUATION WEIGHTAGE

Quizzes 20 Mid Term 35 End Term 35 Class Participation 10 Total 100% SCHEDULE OF SESSIONS MODULE I: Overview of Macroeconomics Module Objective: To discuss dynamics of price- output determination for an economy in different time horizons and to understand basic concepts in national income accounting SESSIONS AND OBJECTIVE Sessions 1 & 2: Introduction and National Income Accounting Objective: To discuss dynamics of price- output determination for an economy in different time horizons and to understand basic concepts in national income accounting Reading: Chap. 1, pp.1-17; Chap 2 pp. 22-42 in Dornbush (2012).

Course Learning Outcome Program Level Goals/ Outcome Assessment Tool(s) 1. Will be able to

understand macroeconomic environment

3.1 Clearly identifies decision problem

Embedded Question(s)in Mid-Term

2. Will be able to appreciate linkages between domestic and world economy

3.2 Uses available information and suggested sources

Embedded Question(s)in End-Term

3. Will be able to understand rationale behind macroeconomic policies

3.3 Identifies and presents appropriate evidence supporting the analysis of alternatives


4. Apply tools of IS-LM and or AS-AD to understand the impact of macroeconomic polici es

3.4 Evolves one’s own perspective or takes a position / makes judgement


MODULE II Economy in the Short Run Module Objective: To discuss the behaviour of goods market and money market and to understand the impact of monetary and fiscal policy in a closed as well as in an open economy in the short run SESSIONS AND OBJECTIVE Session 3: The Goods Market: Models of National Income Determination - I: Consumption and Investment

Objective: To understand the process of determination of national income in a market driven economy Reading: Chap. 9, pp.194-205 in Dornbush (2012). Session 4: The Goods Market: Models of National Income Determination - II: Consumption, Investment and Government

Objective: To understand the role of government in determining the national income Readin g: Chap. 9, pp. 206-215 in Dornbush (2012). Session 5: Models of Nati onal Income Determination - III: Goods Market (IS Curve) Objective: To derive IS- curve from the goods market Reading: Chap.10 pp. 224-232 in Dornbush (2012). Session 6: The Money Market: Demand for Money Objective: To discuss the components of money stock and motives for holding money Reading: Chap. 15, 372-388 in Dornbush (2012). Sessions 7 & 8: The Money Market: Central Bank, Money Supply and Credit: Money Stock Determination and Money Multiplier Objective: To discuss money multiplier and different instruments of monetary control Readings: Chap. 16 pp. 393-406 in Dornbush (2012).

Samuelson, P. A., Nordhaus, W.D., & Chaudhuri, S. (2012). Monetary Policy and the Economy in Macroeconomics (pp. 297-301). New Delhi: Tata McGraw Hill.

Ganesh, K., & Shukla, R. (2015). The 2008 Subprime Crisis and the Indian Economy [Class handout]. IIM Indore, Indore, India.

Chattopadhyay, S. (2015). Monetary policy framework in India [Class handout]. IIM Indore, Indore, India. Session 9: Models of Nati onal Income Determination - III: Goods & Money Markets (IS-LM Model) Objective: To derive LM curve and to discuss equilibrium condition for goods and money markets Readings: Chap. 10 pp. 232-243 in Dornbush (2012). D'Souza, E. (2014). IS-LM in India in Macroeconomics (pp. 223-225). New Delhi: Pearson Education.

Session 10: Stabilisati on Policies in a Closed Economy: Monetary Policy

Objective: To understand the transmission mechanism in monetary policy in a closed economy Reading: Chap. 11 pp. 248-259, Chap.16 pp. 406- 412 in Dornbush (2012). Session 11: Stabilisati on Policies in a Closed Economy: Fiscal Policy

Objective: To understand the impact of fiscal policy in a closed economy Readings: Chap. 11 pp. 259-275 in Dornbush (2012) .

Chattopadhyay, S. (2015). Meeting budget deficit target in India [Class handout]. IIM Indore, Indore, India. Session 12: International Linkages: Extensions of IS-LM in the Context of International Mobility of Goods

Objective: To understand the concepts of balance of payment, fixed and flexible exchange rates Readings: Chap.12, pp. 279-295 in Dornbush (2012).

Economic Survey (2014-15). Impact of Falling Global Crude Prices and Fuel Policy Reforms (Box 2.3) & Implications of Global Crude Oil Price Movements (Box 4.1) in Economic Survey, 2014-15. New Delhi: Govt. of India. Sessions 13 & 14: International Linkages: Extensions of IS-LM in the Context of International Mobility of Capital

Objective: To discuss the impact of monetary and fisc al policies in an open economy with free mobility of capital Reading: Chap. 12 pp. 295-309 in Dornbush (2012) .

MODULE III Economy in the Medium / Long Run Module Objective: To discuss the relationship between inflation and unemployment and to understand the impact of monetary and fiscal policy in an open economy in the long run. SESSIONS AND OBJECTIVE Session 15: Aggregate Demand and Supply

Objective: To derive the aggregate demand curve and to show how shifts in aggregate demand can change output in the short run and prices in the long run Reading: Chap. 10, pp.241-242, Chap. 5 pp. 97- 115 in Dornbush (2012) . Sessions 16, 17 & 18: Aggregate Supply: Wages, Prices and Unemployment

Objective: To discuss the relationship between inflation and unemployment in the short run and in the long run and to derive aggregate supply curve Readings: Chap. 6 pp. 118-141 in Dornbush (2012).

Ganesh, K. (2015). High Inflation During 2009-13 and RBI's Response [Class handout]. IIM Indore, Indore, India. D'Souza, E. (2014). Unemployment and Wages in India in Macroeconomics (pp. 193-194). New Delhi: Pearson Education.

Sessions 19 & 20: International Adjustments and Interdependence: Adjustments under Flexible Exchange Rates; Inflation Differentials, Interest Differentials and Exchange Rate; Exchange Rate Fluctuations and Interdependencies Objective: To discuss the impact of monetary and fiscal policies in an open economy with flexible exchange rates in the long run Reading: Chap. 20, pp. 527-542 in Dornbush (2012) . * * *

Documents

Macroeconomics