MACROECONOMICS FPM: Term II, 2009 Course Information Credits 3 Schedule: Wednesday 8:15am 9:45am; Friday 11:30am 1pm

pm Location: Wednesday Room K-13; Friday K-22 Prof. Vandana Singhvi Patel Email address: vandanas@iimb.ernet.in Extension: 3139; Room #: A-208 Objectives: Macroeconomics is a study of the economy at the aggregate level. A firm grounding in the core concepts and principles of Macroeconomics is required for interpreting economic events that influence the business environment and for incorporating the consequences of major macroeconomic developments into managerial decision making. This course provides a broad overview of the basic principles of macroeconomics. It provides the theoretical and conceptual framework for understanding macroeconomic behavior and supplements this framework with empirical and policy related evidence from India and elsewhere. The objectives of this course are to explain: (i) how the economy works in the aggregate; (ii) the interrelationships among important macroeconomic variables; (iii) the significance of key macroeconomic indicators and measures; and (iv) the implications of various macroeconomic policies. The subject matter deals broadly with the determinants of major macroeconomic variables including output, price level, inflation, interest rates, balance of payments and the exchange rates. The coverage of this course is based largely on the recommended texts. Text Books: The assigned text is Dornbusch & Fischer (D&F), Macroeconomics 6th edition and Macroeconomic Policy Environment by Shyamal Roy. Selected chapters and pages corresponding to each module will assigned for reading. Relevant articles from newspapers, periodicals and journals have been compiled in binders. Readings will be assigned from these binders for each module. At the end of each week, my lecture notes and slides will be uploaded on moodle. Grading: There will be two in-class, closed book and closed notes surprise quizzes during the term. These will constitute 20% of the final grade. There will be a closed book midterm for 30% of the final grade. The final exam will be cumulative and account for the remaining 50% of the final grade. Students are expected to read the selected chapters from the text book and specified articles from the binders. Course outline: The course consists of 7 modules covering 20 lectures. Details of each module and required readings are provided below.

COURSE OUTLINE
Topic Introduction to Macroeconomics Module 1: National Income Accounting Key production indicators Price Indicators Module 2: Aggregate Expenditure Keynesian consumption function

Reading Ch. 1 in D&F Ch. 2 in D&F; Binder #1 Ch 1 & 2 (pages 11-35, 4348) in Roy Ch. 3 in D&F, Ch 3 in Roy; Binder #2 Ch 11 (pgs 297-313); Binder #2 Ch. 4, 5 13 (pages 369-388) in D&F; Ch 2 (pages 35 - 38) in Roy

Alternative theories of consumption and investments

Module 3: IS-LM MODEL The goods market and the IS curve The assets market and the LM curve demand IS-LM equilibrium Comparative Statics Policy issues Module 4: Aggregate demand and supply The AD curve Policy effects on AD curve The AS curve (long run & short run) Expectations and supply shocks and AS curve AD-AS equilibrium MID-TERM EXAM Module 4a: Introduction to Rational Expectations Equilibrium Approach

Ch. 7 & 8 in D&F;

Class Handout

Module 5: Macroeconomic performance Inflation Unemployment

Ch. 17 in D&F; Ch 2 (pages 49 55) in Roy; Ch 10 in D&F Binder #3 Class Handout

Introduction to Growth Theory

Module 6: Economic policies & stabilization 6.1 Fiscal policy Components of fiscal policy Budget deficit, public debt Sustainability of debt Debt Financing Impact on macroeconomic variables Recent trends and policy issues in India 6.2 Monetary Policy What is money supply? The money creation process What is monetary policy? Policy instruments Recent trends and policy issues in India Asset prices and Monetary policy Module 7: Open economy macroeconomics Balance of payments IS-LM model in open economy The Impossible Trinity FINAL EXAM

Ch 4 in Roy Binder#4

Ch. 14 in D&F; Ch 5 in Roy Binder #4

Ch 6 in D&F; Ch 6 in Roy Binder #4