Indian Institute of Management Kozhikode

Course Outline

Course Title : Macroeconomics

Credits : 3
Type : Compulsory
Pre-Requisites : Successful completion of the Term-I Microeconomics course
Term : II
Year : 2017-18
Faculty : Prof. Leena Mary Eapen, Prof. Rudra Sensarma, Prof. Ashok
Thomas

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Introduction & Objective(s):

Course Description: Macroeconomics is the study of the behavior of the economy as a whole.
The recent global financial crisis has exposed the frailty of many firms who could not
anticipate the fast changing business environment and were unable to react effectively. A study
of macroeconomics helps a business manager to evaluate the impact of the changing business
environment on decision making. What are the useful information contained in GDP, CPI and
WPI data announced by the government? How does a change in tax rates announced in the
union budget affect GDP? How does monetary policy action by the RBI influence prices?
What is the effect of a change in interest rates on the rupee-dollar exchange rate? How do a
change in global factors such as oil prices and the fed fund rate affect the domestic business
environment? Such questions have critical ramifications for any business and can be answered
by a study of macroeconomics. Moreover macroeconomics also satisfies an intellectual
curiosity for answers to many important problems faced by the economy and society. Why are
some countries rich and others poor? Why do financial crises occur? Is the European Union a
sustainable entity? Can India ever be a developed nation? Macroeconomics can provide some
solutions and ignite a thirst to search for many others.

Course Objectives: The basic objective of this course is to provide students with the skills to
make intelligent business decisions in a rapidly changing business environment. Successful
completion of the course will enable the students to understand the working of an economy,
identify the major macroeconomic goals and problems, understand the policies available to
governments and central banks to achieve these goals and solve the problems and most
importantly to evaluate the impact of such policies on businesses. We will use a judicious mix
of theory and real-world examples to understand the relationship between the concepts covered
in the course and current economic issues. The objectives in particular are:
(1) To expose the students to the fundamental principles and issues of macroeconomic
theory

(2) To explore the relationship between macroeconomic theory and policy formulation

(3) To enable application of macroeconomic tools and techniques in anticipating changes

in the macroeconomic environment that will help in taking effective business decisions
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Pedagogy: Lectures; Classroom discussions; Project report and Presentation by students
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Text Book:
Macro ECON: A South-Asian Perspective by William A. McEachern & A. Indira, Cengage
Learning, 2016 (MI).

Optional Reading:
Fault Lines: How Hidden Fractures Still Threaten the World Economy by Raghuram Rajan

The Age of Turbulence: Adventures in a New World by Alan Greenspan

End This Depression Now! by Paul Krugman

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global
Capitalism by George A. Akerlof and Robert J. Shiller

Making Globalization Work by Joseph E. Stiglitz

Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoglu and
James Robinson

Capital in the 21st Century by Thomas Piketty

India Unbound: The Social and Economic Revolution from Independence to the Global
Information Age by Gurcharan Das

Breakout Nations: In Pursuit Of the Next Economic Miracles by Ruchir Sharma

India After the Global Crisis by Shankar Acharya

Useful blogs and websites:

http://gregmankiw.blogspot.in/
http://ajayshahblog.blogspot.in/
http://www.economist.com/
http://indianeconomy.org/
http://krugman.blogs.nytimes.com/
http://nourielroubini.blogspot.in/
http://whynationsfail.com/
http://www.freakonomics.com/blog/
http://www.voxeu.com/
http://www.nakedcapitalism.com/

Evaluation Scheme:

Mid-term examination : 25%

End-term examination : 30%
Quizzes : 20%
Report and Presentation : 20%
Class participation : 5%
 Session Details

Session Topic Readings

1 Introduction & Central Issues in Macroeconomics MI, Ch. 5
Overview of the course
Problems of the Indian & global economies
Why they matter to the business manager
2-3 Tracking the Indian Economy MI, Ch. 7
Measuring economic activity: GDP
Circular flow of income and expenditure
Measuring price level: WPI vs. CPI
4 Unemployment and Inflation MI, Ch. 8
Measuring joblessness: Unemployment rate
Sources of unemployment
Sources of inflation
5 The Open Economy MI, Ch. 19
Balance of Payments
Real and Nominal Exchange Rates
Fixed and Flexible Exchange Rate Systems
6 Aggregate Expenditure MI, Ch. 9
Consumption Function, Average & Marginal
Propensities to Consume
Investment Function
Government Spending and Net Exports
7 Aggregate Expenditure and Aggregate Demand MI, Ch. 10
Equilibrium & Income Determination
Autonomous Spending Multiplier
Aggregate Demand Curve
8 Aggregate Supply MI, Ch. 11
Labor and Aggregate Supply
Short Run Aggregate Supply Curve
Long Run Aggregate Supply Curve
9 Fiscal Policy MI, Ch. 12
Fiscal Policy Tools
Tax Multiplier
Automatic Stabilizers
10 Fiscal Impact of budget MI, Ch. 13
Fiscal deficit
Crowding Out
Twin Deficit
11 Discussion Reading List
Is GDP a good measure of economic health? to be Assigned
Will the future be one of jobless growth? (RLA)
12 Discussion RLA
How to kick start the corporate investment cycle?
Is fiscal deficit and public debt threatening long term
growth?
13-14 Money, Banking and the Financial System MI, Ch. 14-15
Evolution of Money and the Financial System
The Central Banks Tools of Monetary Control
How Commercial Banks Create Money
15-16 Monetary Policy MI, Ch. 16
Money Demand, Money Supply & Interest Rate
Quantity Theory of Money
Monetary Policy Targets
17 Macroeconomic Policy Debates MI, Ch. 17
Active Policy Vs Passive Policy
The Role of Expectations
The Phillips Curve
18 Discussion
Can Inflation Targeting and Interest Rate Rules RLA
Work in India?
The Limits of Monetary policy: What Can We Learn
from International Experience?
19 The Open Economy MI, Ch. 18
Gains from Trade
Reasons for International Specialization
Trade Barriers
20-21 Macroeconomic Policy in an Open Economy RLA
Capital Mobility and the World Interest Rate
How Policies Influence the Trade Balance
How Policies Influence the the Real and Nominal
Exchange Rates
22 Discussion
How Do International Commodity Prices Impact the RLA
Domestic Economy?
How Does International Capital Mobility Affect the
Central Banks Policy Trilemma?
23 Discussion
Do Leading Indicators Say Something Useful About RLA
Future Economic Growth?
Can Poorer Economies Catch up with Richer Ones?
24 The Global Economic Environment
Summary & Review RLA