POST GRADUATE PROGRAMME IN MANAGEMENT

AY 2017-18 TERM: II

TITLE OF THE COURSE: MACROECONOMICS

CREDITS: 4

Name of the Faculty Faculty Blok/ Email Telephone

Room No. Number
Prof. Dipayan D. Chaudhuri A 101 dipayan@iimidr.ac.in +91-731-2439511
Prof. Ganesh Kumar N B 208 ganesh@iimidr.ac.in +91-731-2439552
Prof. Indrajit Thakurta C 211 indrajit@iimidr.ac.in +91-731-2439595
Prof.Subhasankar B 205 subhasankarc@iimidr.ac.in +91-731-2439549
Chattopadhyay

CONSULTATION TIME FOR STUDENTS

Name of the Faculty
Prof. Dipayan D. Chaudhuri
Prof. Ganesh Kumar N
Prof. Indrajit Thakurta
Prof.Subhasankar Chattopadhyay
Timing
3.00 p.m. to 4.00 p.m. on the day of the classes or by
appointment on other days

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 5 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: Dornbush, R., Fischer, S. & Startz, R. (2015), Macroeconomics, 11th Edition. New Delhi:
Tata McGraw-Hill. (Hereafter referred to as Dornbush (2015).) Students should own this book.

LEARNING OUTCOMES
Expected Learning Outcomes and Associated Measures

At the end of the course student is expected to accomplish the following learning outcomes
(CLO). Alignment of CLO with the Programme Level Goals & Objectives and Assessment of the
learning outcomes of the course is presented below.

Course Learning Outcome Program Level Goals/ Outcome Assessment Tool(s)

1. Will be able to 3.1 Clearly identifies decision Embedded Question(s)in
understand problem Mid-Term
macroeconomic
environment
2. Will be able to appreciate 3.2 Uses available information Embedded Question(s)in
linkages between and suggested sources End-Term
domestic and world
economy
3. Will be able to 3.3 Identifies and presents Embedded Question(s)in
understand rationale appropriate evidence End-Term
behind macroeconomic supporting the analysis of
policies alternatives
4. Apply tools of IS-LM and 3.4 Evolves ones own Embedded Question(s)in
or AS-AD to understand perspective or takes a position End-Term
the impact of / makes judgement
macroeconomic policies

EVALUATION WEIGHTAGE
Quizzes 20
Mid Term 35
End Term 35
Class Participation 10
Total 100%
ACADEMIC DISHONESTY

IIM Indore believes in Academic honesty.

Academic dishonesty or misconduct is cheating that relates to an academic activity. It is a violation
of trust between the Institute and its stakeholders. Plagiarism, fabrication, deception, cheating and
sabotage are examples of unacceptable academic conduct. Please consult the Programme manual
for the section on academic dishonesty.

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 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
Reading: Chap. 1, pp.1-17; Chap 2 pp. 22-47, Dornbush (2015).

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 short run
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
Reading: Chap. 9, pp.194-205, Dornbush (2015).

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

Reading: Chap. 9, pp. 206-215, Dornbush (2015)
Session 5 Models of National Income Determination - III: Goods Market (IS Curve)

Objective: To derive IS- curve from the goods market

Reading: Chap.10 pp. 224-232, Dornbush (2015).
Session 6 The Money Market: Demand for Money

Objective: To discuss the components of money stock and motives for holding money
Reading: Chap. 15, 377-392, Dornbush (2015).
Session 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: 1) Chap. 16 pp. 397-411, Dornbush (2015).
2) Samuelson, P. A., Nordhaus, W.D., & Chaudhuri, S. (2012). Monetary Policy
and the Economy in Macroeconomics (pp. 297-301). New Delhi: Tata
McGraw Hill.
3) Nidugala, G.K. & Shukla, R. (2015). The 2008 Subprime Crisis and the Indian
Economy [Class handout]. IIM Indore, Indore, India.
4) Chattopadhyay, S. (2015). Monetary policy framework in India [Class
handout]. IIM Indore, Indore, India.
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: 1) Chap. 10 pp. 232-243 in Dornbush (2015).
2) D'Souza, E. (2014). IS-LM in India in Macroeconomics (pp. 223-225). New
Delhi: Pearson Education.
Session 10 Stabilisation Policies in a Closed Economy: Monetary Policy

Objective: To understand the transmission mechanism in monetary policy in a closed

economy
Readings: 1) Chap. 11 pp. 248-262 in Dornbush (2015).
2) Economist (2016). When 2% is not enough.
http://www.economist.com/news/leaders/21705826-rich-worlds-central-
banks-need-new-target-when-2-not-enough?frsc=dg%7Cd (to be read
online)
Session 11 Stabilisation Policies in a Closed Economy: Monetary Policy

Objective: To understand the impact of fiscal policy in a closed economy

Readings: 1) Chap. 11 pp. 262-280 in Dornbush (2015).
2) Chattopadhyay, S. (2015). Meeting budget deficit target in India [Class
handout]. IIM Indore, Indore, India.
 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: 1) Chap.12, pp. 283-299, Dornbush (2015).
2) Economic Survey (2014-15). Impact of Falling Global Crude Prices and Fuel
Policy Reforms (Box 2.3) & Implications of Global Crude Oil Price
Movements (Box 4.1) in Economic Survey, 2014-15. New Delhi: Govt. of
India.
Session 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. 299-313, Dornbush (2015).

MODULE III Economy in the Medium / Long Run

Module Objective: To discuss the relationship between inflation and unemployment and to
understand the impact of monetary and fiscal policy in an open economy in the long run.

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, Dornbush (2015).
Sessions 16,17&18 Aggregate Supply: Wages, Prices and Unemployment
Objective:
To discuss the relationship between inflation and unemployment in the short
Readings: run and in the long run and to derive aggregate supply curve
1) Chap. 6 pp. 118-140, Dornbush (2015).
2) Nidugala, G. K. (2015). High Inflation During 2009-13 and RBI's Response
[Class handout]. IIM Indore, Indore, India.
3) D'Souza, E. (2014). Unemployment and Wages in India in Macroeconomics
(pp. 193-194). New Delhi: Pearson Education.
Sessions 19&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. 534-550, Dornbush (2015).
Please indicate the changes made in the course outline based on the measurement of
assurance of learning (closing the loop)/student feedback: NIL

Please give the details of the book if students need to buy the book
Author Title Publisher Edition Remarks, if any
Dornbush, R., Macroeconomics New Delhi: Tata 11th Edition 2015
Fischer, S. & McGraw-Hill
Startz, R.

Additional Readings

NIL

******