Post Graduate Programme in Management

2014-15
TERM: II
TITLE OF THE COURSE: MACROECONOMICS
CREDITS: 4
_______________________________________________________________________________
Name of the Faculty member
Dipayan d. Chaudhuri
Ganesh Kumar N

Indrajit Thakurta

Room No.
A- 101

B - GF Conf. room

B- 208

Email:
dipayan@iimidr.ac.in

ganesh@iimidr.ac.in

indrajit@iimidr.ac.in

Telephone Number
+91-731-2439511

+91-731-2439552

+91-731-2439595

Subhasankar Chattopadhyay
B - 205
subhasankarc@iimidr.ac.in
+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 6 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:
Macroeconomics by R. Dornbush et.al. Tenth Edition , 2008

EVALUATION
Quizzes
Mid Term
End Term
Class Participation
Total

WEIGHTAGE
20%
35%
35%
10%
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
Readings : Chap. 1, pp.1-17; Chap 2 pp. 22-42 in Macroeconomics by R.Dornbush et.al. Tenth
Edition , 2008
Case Study : "Measuring What Matters" , The Economist , September 17, 2009.
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 shrort 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
Readings : Chap. 9, pp.194- 205 in Macroeconomics by R.Dornbush et.al. Tenth Edition , 2008
Case Study : "The Puzzle of Sticky Magazine Prices" , pp. 240-241 in Macroeconomics by
N.G.Mankiw, Fifth Edition , Worth Publishers, 2006.
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
Readings : Chap. 9 , pp. 206- 215 in Macroeconomics by R.Dornbush et.al. Tenth Edition , 2008
Case Study : "Cutting Taxes to Stimulate the Economy" pp. 266 in Macroeconomics by
N.G.Mankiw, Fifth Edition , Worth Publishers, 2006.

Session 5: Models of National Income Determination - III : Goods Market (IS Curve)
Objective : To derive IS- curve from the goods market
Readings: Chap.10 pp. 224- 232 in Macroeconomics by R.Dornbush et.al. Tenth Edition , 2008
Session 6: The Money Market : Demand for Money
Objective : To discuss the components of money stock and motives for holding money
Readings : Chap. 15, 372- 388 in Macroeconomics by R.Dornbush et.al. Tenth Edition , 2008
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 Macroeconomics by R.Dornbush et.al. Tenth Edition , 2008
Case Study : "Bank Failure and the Money Supply in 1930s" , pp. 488-489 in Macroeconomics by
N.G.Mankiw, Fifth Edition , Worth Publishers, 2006.
Session 9 : Models of National 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 Macroeconomics by R.Dornbush et.al. Tenth Edition , 2008
Case Study : "Did Paul Volcker's Monetary Tightening Raise or Lower Interest Rates?" pp. 273-274
in Macroeconomics by N.G.Mankiw, Fifth Edition , Worth Publishers, 2006.
Session 10: Stabilisation 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 Macroeconomics by R.Dornbush et.al.
Tenth Edition , 2008.
Case Study : "What Happens When the Interest Rate Hits Zero ?" pp. 254-255 in Macroeconomics
by R.Dornbush et.al. Tenth Edition , 2008.
Session 11 : Stabilisation 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 Macroeconomics by R.Dornbush et.al. Tenth Edition , 2008.
Case study : "Much Ado About Multipliers" , The Economist ,September 24, 2009.
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 Macroeconomics by R.Dornbush et.al. Tenth Edition , 2008.

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 fiscal policies in an open economy with free
mobility of capital
Readings: Chap. 12 pp. 295- 309 in Macroeconomics by R.Dornbush et.al. Tenth Edition , 2008.
Case Study : 1. "German Unification and External Problems" pp. 303 in Macroeconomics by
R.Dornbush et.al. Tenth Edition , 2008.
2. " Burger - Thy - Neighbour - Policy" in The Economist, September 5, 2009
MODULE

III ECONOMY IN THE MEDIUM / LONG RUN

MODULE OBJECTIVE
To discuss the relationship beween 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
Readings : Chap. 10, pp.241-242 , Chap. 5 pp. 97- 115 in Macroeconomics by R.Dornbush et.al.
Tenth Edition , 2008
Sessions 16 & 17 : 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 Macroeconomics by R.Dornbush et.al. Tenth Edition , 2008.
Case "Curve Ball", The Economist, September 28, 2006.
Sessions 18 & 19 : International Adjustments and Interdependence : Adjustments under Fixed
Exchange Rate System
Objective : To understand the role of prices, devaluation and trade balance in an open economy
with fixed exchange rate system
Readings : Chap. 20 507 - 527 in Macroeconomics by R.Dornbush et.al. Tenth Edition , 2008
Case Study : "Mexico's External Balance" pp. 516-517 in Macroeconomics by R.Dornbush et.al.
Tenth Edition , 2008
Session 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
Readings : Chap. 20 pp. 527- 542 in Macroeconomics by R.Dornbush et.al. Tenth Edition , 2008.
Case Study : "Unsustainable Deficits and the Dollar Bubble" pp. 540-541 in Macroeconomics by
R.Dornbush et.al. Tenth Edition , 2008.
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