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Course Co-ordinated by IIT Kanpur
Coordinators
 
Prof.Surajit Sinha
IIT Kanpur

 

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The course elaborates on the effectiveness of alternative stabilization policies in long run and cyclical Macroeconomic Theory. Assuming that a student has no prior knowledge of the subject, the course begins with a general discussion on how Macroeconomics is different from Microeconomics, common macroeconomic variables, the distinction between very long run Growth Theory, long run Classical Theory and short and medium run cyclical Keynesian Theory, Phillips Curve, Okun’s Law, the structure of a macroeconomic model, and a brief statement on various policy results that follow from the alternative schools of thought (eg classical, Keynesian, new classical etc). The next topic is entirely devoted to National Income Accounting methods, price indices and unemployment rate. The Classical model is developed in the following topic, followed by the Keynesian Cross Model, Investment, IS-LM model, and the complete Keynesian model in subsequent topics. The course ends with a description of the Balance of Payments account, exchange rate systems, and an extension of the IS-LM model to the open economy. Both Monetary and Fiscal policy are discussed at length in the context of all these structural models.

Topic

Title

Issues

No. of lectures

01.

Introduction

Macroeconomic vs. Microeconomic Issues, Economic Systems, Alternative Branches of Macroeconomic Theory, Business Cycles, Prices Output & Employment, Structure of a Macro Model, Multipliers and Stabilization Policy, and Schools of Thought

3

02.

Measurement of
Aggregate Economic Variables

National Income Accounting Methods: Output, Income & Expenditure Methods, Price Indices: CPI, WPI & GDP Deflator, and Unemployment Rate

7

03.

Classical Model

Goods Market, Money Market and Relationship between Money Market and non-Money Assets Market, Labour Market, Aggregate Demand and Supply Functions, Ineffectiveness of Monetary Policy, Voluntary Unemployment, and Quantity Theory of Money

4

 

Discussion

Question/Answer Session with Students

1

04.

Keynesian Cross Model

Unutilized Capacity and Horizontal Aggregate Supply Function, Goods Market: Consumption Function & Savings Function, Goods Market Clearing Condition, Stability and Inventory Adjustments, and Expenditure and Tax Multipliers

5

05.

Investment Theory

Investment Functions, Inventory Investment, Business Fixed Investment, and Residential Investment

2

06.

IS-LM Model

Money Market and Keynesian Demand for Money Function, IS and LM Functions, Phase Diagram, Stability Conditions, Fiscal and Monetary Policies and their Effectiveness, Aggregate Demand Function

7

07.

Variable Price Keynesian Model

Labour Market Disequilibrium, Aggregate Supply Function, Involuntary Unemployment, Effectiveness of Fiscal and Monetary Policies

4

 

Discussion

Exam paper Discussion

1

08.

Hybrid Model

IS-LM Model with Classical Labour Market, and Effectiveness of Tax Policy

1

09.

Balance of Payments Account & Exchange Rate Systems

Current Account and its Sub-accounts, Capital Account, Exchange Rate, Fixed vs Flexible Exchange Rate Systems, and Semi-floating Exchange Rate System

2

10.

IS-LM-BP Model

Open Economy IS Function, BP Function and Capital Mobility, and Fiscal and Monetary Policies under Fixed and Flexible Exchange Rate Systems

4

 

 

TOTAL

41

 

  • Intermediate Microeconomic Theory Calculas
  • Matrix Algebra

  • N. Gregory Mankiw, Macroeconomics, Worth Publishers.
  • R Dornbusch, S Fischer and R Startz, Macroeconomics, McGraw-Hill.

  • W M Scarth, Macroeconomics: An Introduction to Advanced Methods, Worth Publishers.
  • S J Turnovsky, Macroeconomic Analysis and Stabilization Policy, Cambridge University Press.


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