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Lecture1 p ,2013 3 16, September

SchemeoftheLecture
y WhatisMacroeconomics y SomeConcepts y SchoolsofMacroeconomics y Structure of S fourSyllabus S ll b

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WhatisMacroeconomics

WHATDOESITTAKETOBEAMACRO ECONOMIST?

y mathematician, th ti i historian,statesman, y philosopherinsome degreeasaloofand incorruptibleasanartist, yetsometimesasnearas earthasapolitician y JohnMaynardKeynes


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MACROECONOMICNEWS
y Macroeconomicnewsistypically

pageonenewseverywhere, everywhere like


y RisinginflationinIndia y DepreciationofINR y HighFiscalDeficitinIndia y IncreasingunemploymentinUSA y ThedebtcrisisinGreece y ThevalueoftheChineseYuan
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SomeKeyFeatures
y Young gandImperfect p Science y Macroeconomichistorycouldgiveyouasenseof

perspective y Politicsplayakeyrole y ToyModels providingthegrammar us, Thus, Macroecoomic TheoryAnalyticalExplanations ofanIncident ofPossiblePolicy

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THEKEYQUESTIONS
y Whatdeterminesanationslongrun

economic i growth? th? y Whatcausesanationseconomicactivity tofluctuate? y Whatcausesunemployment? y Whatcausespricestorise? y Howdoesbeingpartofaglobaleconomic systemaffectnationseconomies? y Cangovernmentpoliciesbeusedto improveaneconomysperformance?
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THENATUREOFMACROECONOMIC ANALYSIS
yU Understanding de sta d gthe t eaggregate agg egateeconomy. eco o y.

Allmarketstakentogether goodsand services(housesandhaircuts,exports andimports),financialassets(bonds andbankdeposits),labour (consultantsandcarpenters)intoan entirecountry saggregate demandand countrys aggregate supply.Linkingthefunction ofmarkets,governments,andfinancial institutionslikebanks.
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Method
y Weusethisunderstandingtomeasureand compareperformance,suggestpolicies,make forecasts. y Themethodofcomparativestatics y Restrictiveassumptionscanberemoved gradually,andmodelsmademore complicated y Simplifyingassumptionstofocusonsome fundamentalrelationshipsinaverycomplex world y Exogenousandendogenousvariables y Resultsarecontingentonassumptions y Solutions
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SIMPLEMODELSFORACOMPLEXWORLD
y Simplifyingassumptionstofocus

onsomefundamentalrelationships inaverycomplexworld y Exogenousandendogenous variables y Resultsarecontingenton assumptions y Solutions


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EconomicModels

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SomeConcepts

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SomeBasicConcepts
y StockversusFlow y RealversusNominal y PlannedversusActual y EquilibriumversusIdentity y FlexibleversusStickyPrice

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SchoolsofMacroeconomics

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WHYDOMACROECONOMISTSDIFFER?
y Macroeconomistsdifferintheir

analysisoftheeconomyandthe policiestheyprescribefordesirable outcomes y Theyworkwithdifferentmodelsbased ondifferentassumptions,specially abouttheflexibilityofpricesand wages y Butbeforeonecanappreciatethese, these oneneedstoseehoweconomistsand accountantsaddupdifferentthings likeapplesandoranges
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SchoolsofMacroeconomics
Classical

Keynesian

Monetarist

RationalExpectations/NewClassicalMacroeconomics

NewKeynesianMacroeconomist

RealBusinessCycle

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NobelLaureateMacroeconomists
y y y y y y y y y y y y y

2011: Thomas J. Sargent and Christopher A. Sims - "for their empirical research on cause and effect in the macroeconomy" 2006 Edmund S. Phelps - "for his analysis of intertemporal tradeoffs in macroeconomic policy" 2004 - Finn E. Kydland and Edward C. Prescott - "for their contributions to dynamic macroeconomics: the time consistency of economic policy and the driving forces behind business cycles" 1999: Robert A. Mundell - "for his analysis of monetary and fiscal policy under different exchange rate regimes and his analysis of optimum currency areas" 1995 Robert E. 1995: E Lucas L cas Jr. Jr - "for having ha ing developed de eloped and applied the hypothesis h pothesis of rational expectations, e pectations and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy" 1987: Robert M. Solow- "for his contributions to the theory of economic growth" 1985: Franco Modigliani - "for his pioneering analyses of saving and of financial markets" 1984 Richard Stone "for having made fundamental contributions to the development of systems of national accounts and hence greatly improved the basis for empirical economic analysis" 1981: James Tobin - "for his analysis of financial markets and their relations to expenditure decisions, employment, production and prices 1976 Milton Friedman "for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy" 1972 John R. Hicks and Kenneth J. Arrow- "for their pioneering contributions to general economic equilibrium theory and theory" ilib i th d welfare lf th " 1971 Simon Kuznets "for his empirically founded interpretation of economic growth which has led to new and deepened insight into the economic and social structure and process of development" 1970: Paul A. Samuelson - "for the scientific work through which he has developed static and dynamic economic theory and actively contributed to raising the level of analysis in economic science

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StructureofOurSyllabus

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Macroeconomics

ShortRun BusinessCycles

Dynamic EconomyLong runEconomic Growth

National Accounts

Closed

Open

SolowGrowth Model

StylizedFacts

Classical

Keynesian

FixedExchange Rate

Flexible ExchangeRate

DemandSide

SupplySide

Goods

Money

Labor

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BasicText
N.GREGORY N GREGORYMANKIW/ MACROECONOMICS /7th Edition,2009 SelectChapters Photocopied Material
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ChaptersfromMankiw
Lectures 1 2 3 4 5 6 7 8 9 10 11, 12 13. 14 15 16 17 18 19 20 Topic Introduction National Accounts Accounting Classical Model & Labor Market Money Market (Classical Paradigm) Keynesian Cross Model Good Market: IS Curve + Money Market: LM Curve IS-LM Equilibrium Aggregate Demand Aggregate Supply +AS-AD Equilibrium Phillips Curve Mid Term Exam Open Economy - I y II Open Economy Economic Growth I Economic Growth II Special Topic -1 : Ricardian View of Govt Debt Special Topic -2: Consumption and Intertemporal Choice Current Crisis Sum-up End-Term Exam Chapter from Mankiw 1 2 3 4 10 10 10 11 13 13 5 12 7 8 16 17

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EvaluationPattern
y OneMidTerm y OneEndTerm y SeparateQuestionsacrossInstructors y Shortanalyticalquestions y ButGradeNormalization

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