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Indian Institute of Management Kozhikode Course Outline Course Title : Macroeconomics Credits : 3 Type

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

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

Pedagogy: Lectures; Classroom discussions; Project report and Presentation by students

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:

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 to be Assigned (RLA)

Is GDP a good measure of economic health?

Will the future be one of jobless growth?

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 Bank’s 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 Work in India?

RLA

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 Domestic Economy?

RLA

How Does International Capital Mobility Affect the Central Bank’s Policy Trilemma?

23

Discussion

 

Do Leading Indicators Say Something Useful About Future Economic Growth?

RLA

Can Poorer Economies Catch up with Richer Ones?

24

The Global Economic Environment

 

Summary & Review

RLA