Vineet Virmani

Macroeconomics and Economic Policy

IIM, Ahmedabad

Macroeconomics and Economic Policy

Instructor: Vineet Virmani Contact: Wing 7-H, Ext: 4868 Email: vineetv@iimahd.ernet.in Area: Economics Year: 2012-13 (Slot 2-3) Number of Sessions: 20

Course Description Why do some countries grow at a faster rate than others? Why are there ination, unemployment and recessions? What are the sources of these aggregate economic uctuations? Can the government/policymakers do something about them? Should they? While the questions are clearly simply stated, their importance to businesses and our lives cannot be overstated. This course provides a framework to start thinking about, if not outright answering, these questions. The course will introduce students to the denition and measurement of aggregate variables such as income and expenditure, ination and unemployment, and then develop a conceptual framework that provides insights into the determinants of these aggregate measures that macroeconomics concerns itself with. The course will also include an analysis of the role of government and central bank with reference to monetary, scal and foreign exchange rate policies.

Evaluation Problem Sets: 10% Quizzes: 20% Mid-term: 35% End-term: 35%

Textbook Errol DSouza (2012). Macroeconomics. Pearson, 2nd Ed. [Hereafter referred to as Errol]

Academic Associate R. Rema (remar@iimahd.ernet.in; Ph: 4861)

Vineet Virmani

Macroeconomics and Economic Policy

IIM, Ahmedabad

Sessions Outline

1. Macroeconomics: What is it About? The Great Depression Reading : Errol, Chapter 1 (Sections 1.1 - 1.2) 2. Measurement of Macroeconomic Aggregates: I Aggregate Income and Its Dimensions Measuring Aggregate Income Connecting Output and Expenditure to income Components of Aggregate Expenditure Reading : Errol, Chapter 1 (Section 1.2) 3. Measurement of Macroeconomic Aggregates: II Comparing Income across Time Measures of Ination: WPI, CPI, GDP Deator Ination in India since 2007 Reading : Errol, Chapter 1 (Section 1.3) 4. Savings, the Balance of Payments and Exchange Rate Determination The Sources and Uses of Savings The Balance of Payments Exchange Rate Determination Reading : Errol, Chapter 2 (Sections 2.1 - 2.2) 5. The Money Supply: I Banks Balance Sheet and Money Supply Reading : Errol, Chapter 2 (Section 2.3) 6. The Money Supply: II Deposit Creation and the Money Multiplier Foreign Exchange Reserves and Open Market Operations Reading : Errol, Chapter 2 (Section 2.3)

Vineet Virmani

Macroeconomics and Economic Policy

IIM, Ahmedabad

7. Consumption: I Determinants of Aggregate Consumption Consumption Smoothing Reading : Errol, Chapter 3 (Sections 3.1 - 3.2) 8. Consumption: II Temporary and Permanent Shocks to Consumption Eect of Interest Rates on Consumption Reading : Errol, Chapter 3 (Sections 3.3 - 3.4) 9. Investment Physical Investment Decisions Prot Maximization and Optimal Capital Stock Adjustment Costs and Investment Decisions Reading : Errol, Chapter 4 (Sections 4.1 - 4.3) 10. The Demand for Money Financial Assets and the Budget Constraint Real vs. Nominal Interest Rates Demand for Real Money Balances Reading : Errol, Chapter 6 (Sections 6.1 - 6.3) 11. The IS-LM Model: I The IS Curve Reading : Errol, Chapter 8 (Sections 8.2 - 8.3) 12. The IS-LM Model: II The LM Curve Reading : Errol, Chapter 8 (Section 8.4) 13. The IS-LM Model: III Crowding Out Stabilization Policy in the IS-LM World Reading : Errol, Chapter 8 (Sections 8.3 - 8.5)

Vineet Virmani

Macroeconomics and Economic Policy

IIM, Ahmedabad

14. The Labour Market Prot Maximization and Labour Demand Aggregate Supply with/without Money Illusion Reading : Errol, Chapter 7 (Sections 7.1 - 7.3) 15. Unemployment Cyclical Unemployment and the Output Gap The Static Phillips Curve Reading : Errol, Chapter 7 (Sections 7.4 - 7.6) 16. Aggregate Demand and Aggregate Supply Aggregate Demand in the IS-LM World Aggregate Supply Reading : Errol, Chapter 9 (Sections 9.1 - 9.2) 17. AD-AS Equilibrium and Macroeconomic Policy Aggregate Demand-Aggregate Supply Equilibrium Policy Lags Reading : Errol, Chapter 9 (Sections 9.3 - 9.4) 18. Open Economy: I Macroeconomics for an Open Economy Capital Mobility Covered and Uncovered Parity Reading : Errol, Chapter 5 (Sections 5.3 - 5.4); Chapter 11 (Sections 11.1 - 11.2) 19. Open Economy: II The Mundell-Fleming Model Policy Considerations under Floating/Fixed Exchange Rates Reading : Chapter 11 (Sections 11.3 - 11.7) 20. Macroeconomic Schools of Thought and the Great Recession Neo/New/Post Classicals, Keynesians and Monetarists The Great Recession Reading : Errol, Chapter 15; Mankiw (2006; to be provided later)