Indian Institute of Management Kozhikode

Course Outline
Course Title

Macroeconomics

Credits

Type

Compulsory

Pre-Requisites

Successful completion of the Term-I Microeconomics course

Term

II

Year

2015-16

Faculty

Prof. Leena Mary Eapen and Prof. Rudra Sensarma

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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, 2012 (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

Imagining India: The Idea of a Renewed Nation by Nandan Nilekani

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
1

9-10

11-12

13

14

Topic
Introduction & Central Issues in Macroeconomics
Overview of the course
Problems of the Indian & global economies
Why they matter to the business manager
The Data of Macroeconomics
Measuring economic activity: GDP
Circular flow of income and expenditure
Measuring price level: WPI vs. CPI
Inflation and Unemployment
Measuring joblessness: Unemployment rate
Sources of unemployment
Sources of inflation
Aggregate Expenditure
Consumption Function, Average & Marginal
Propensities to Consume
Investment Function
Government Spending and Net Exports
Aggregate Expenditure and Demand
Equilibrium & Income Determination
Autonomous Spending Multiplier
Aggregate Demand Curve
Aggregate Supply
Labor and Aggregate Supply
Short Run Aggregate Supply Curve
Long Run Aggregate Supply Curve
Fiscal Policy
Fiscal Policy Tools
Tax Multiplier
Automatic Stabilizers
Fiscal Impact of budget
Fiscal deficit
Crowding Out
Twin Deficit
Financial Markets
Evolution of Money
The Role of Central Bank & Its Tools to Control
Money Supply
Role of Banks- Money Multiplier
Monetary Policy
Money Demand, Money Supply & Interest Rate
Quantity Theory of Money
Monetary Policy Targets
Fiscal Policy in Action
Discussion on Fiscal Deficit Crisis
Discussion on Financing of Fiscal Deficit
Monetary Policy in Action

Readings
MI, Ch. 5

MI, Ch. 7

MI, Ch. 8

MI, Ch. 9

MI, Ch. 10

MI, Ch. 11

MI, Ch. 12

MI, Ch. 13

MI, Ch. 14-15

MI, Ch. 16

Reading List
to be assigned (RL)

15-16

17-18

19

20

21

22

23-24

Discussion on Inflation Targeting and Interest Rate

Rules
Discussion on Monetary policy Transmission
Mechanisms
Macroeconomic Policy Debates
Active Policy Vs Passive Policy
The Role of Expectations
The Phillips Curve
The Open Economy
International Trade- Advantages and Disadvantages
Balance of Payments
Fixed and Flexible Exchange Rates
Productivity and Growth
Growth and Production Possibility Frontier
Productivity and Growth
Technology and Growth
Developing and Transition Economies
Differences between Developing and Industrial
Economies
Differences in Productivity
International Trade, Foreign Aid and Development
Policy Challenges in the Open Economy
Discussion on Current Account Deficit
Discussion on Impossible Trinity
Productivity, Growth and Development in Practice
Discussion on Leading indicators of Economic
Growth
Discussion on Growth Convergence Across
Countries
Recent Issues
Discussion on Investment in India
Discussion on Inflation in India
Discussion on Global Economic Scenario
Review & Feedback

RL

MI, Ch. 17

MI, Ch. 18, 19

MI, Ch. 6

MI, Ch. 20

RL

RL

RL