Macroeconomics: Theory and Policy

The course starts with the understanding of the basic accounts and indicators of the economy. Then the course proceeds with the theories of consumption, savings and investment. Then we understand how shifts in aggregate demand and aggregate supply affect the overall economic outcomes such as growth and inflation. Then the focus shifts on the government and its fiscal policies, taxation and the sort of impact it has on economy. We touch upon indicators like fiscal deficit, revenue deficit, primary deficit and look at issues like fiscal sustainability and public debt and how they impact the economy. We also touch upon the role of Central banks and how it affects the monetary policy of the economy. We discuss the various monetary tools and policies and contextualise the interest rates and liquidity available in the economy. The last module deals with a country’s engagement with the world through trade and capital flows where we discuss external sector accounts, imbalances that a country may have, exchange rates and capital flows. This will help to look at an economy and its integration with the rest of the world.

Week 1: Basic accounts and indicators of our economy.

• National Income Accounting
• Circular Flow of Income
• Measuring GDP
• Twin Deficit Identity
• Price Indices
• Employment Indicators
• Poverty and Inequality

Week 2: Consumption and Savings

• Introduction to Keynes
• Keynesian Equilibrium
• The Multiplier
• Alternative Theories of Consumption
• Determinants of Investment

Week 3: Aggregate Demand and Supply

• Aggregate demand
• Aggregate supply
• Equilibrium
• Managing the economy
• Case studies
• Inflation and Deflation
• Growth

Week 4: Fiscal Policy

• Terms and definitions
• Financing the deficit
• Public debt
• Developed and developing country issues
• Pandemic fiscal policy
• Fiscal reforms in India

Week 5: Monetary Policy

• Definition and transmission
• Money supply process
• Instrument of monetary policy
• Instruments in India
• Foreign transactions
• Monetary policy targets and effectiveness
• Demonetization in India

Week 6: Open Economy

• Balance of payments
• Exchange rates
• Exchange rate regimes
• Indicators of exchange rates
• Convertibility
• Open economy and India