IBS Hyderabad (Academic Year – 2019-20)

Course Handout

Program : MBA
Course Code : SLEC502
Course Title : Macroeconomics and Business Environment (MEBE) Semester: II
Faculty Name : Room No:
Consultation Hours (Day/time) :
Mobile No: Email:

Course Description:
This course enables the students to understand the basic concepts and developments in
macroeconomics to know the aggregate behavior of an economy. The students will learn the
fundamental economic ideas like measuring national output/ Income, GDP, aggregate demand
and aggregate supply, the consumption function, savings function, investment spending, the
multiplier principle and the influence of government spending on income and output. It also
provides students with a useful understanding of the product and money market and their
interaction using the IS/LM framework; the design and effects of monetary and fiscal policy;
budget deficits and government debt; and the open economy Framework. This course introduces
the economic analysis of key macroeconomic variables such as national output, inflation, interest
rates, exchange rates, unemployment, and business cycles. The course will conclude with a
discussion on globalization and the challenges in steering the economy in turbulent global
imbalances.

Course Objectives
At the end of the course, students are expected to:
• Demonstrate managerial skills and competencies required for understanding and
analyzing the macroeconomic scenarios for business decision making.
• Demonstrate business knowledge in locating and interpreting macroeconomic data; and
identify and explain important macroeconomic concepts using the stylized facts of
business cycle fluctuations, economic growth, and unemployment.
• Show their problem-solving aptitude by identifying current economic issues and debates,
then apply simple macroeconomic models to analyze and interpret policy issues.
• Demonstrate problem-solving ability in evaluating the scope for policy to improve
macroeconomic performance.
• Analyze macroeconomic economic models to explain and interpret the behavior of key
macroeconomic variables
• Demonstrate leadership using sound macroeconomic knowledge and credible decision
making.

Learning Outcomes
1. Students will make an informed and effective selection with the application of
macroeconomic knowledge in a discipline or profession, in the contexts of local and
global business.
2. Students will define and address business problems, and propose effective evidence-
based solutions, through the application of rigorous macroeconomic analysis and critical
thinking.

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 IBS Hyderabad (Academic Year – 2019-20)
3. Students will be able to utilize a simple contemporary economic model such as the
aggregate supply/aggregate demand model and describe the interrelationships among
prices, income and interest rates as they affect consumption, saving and investment.
4. Students will be able to describe the contemporary monetary and banking system and
analyze the role of money, credit, and Reserve Bank of India’s monetary policy.
5. Students will be able to analyze fiscal and monetary policy decisions to counter business
cycle swings by using macro-economic models.
6. Students will be able to outline the role of comparative advantage in exchange and the
importance of exchange rates. Describe the role of international trade and finance in
domestic economic activity.
7. Students will be aware of the global business environment and will be actively committed
to recognize and respect diversity in cultural norms, beliefs, and values, and will apply
this knowledge to interact, communicate and work effectively in diverse environments.

Recommended Text Book:

➢ Macroeconomics by Dornbusch Rudiger, Fischer Stanley, and Startz Richard. McGraw Hill Education;
Twelfth edition, 2018.

Suggested reference books:

• Macroeconomics by Gregory Mankiw. 9th edition, 2016. Worth Publishers.
• Macroeconomics by Andrew B. Abel, Ben Bernanke, and Dean Croushore. 8th Edition, 2015.
• Macro ECON: A South-Asian Perspective by William A. McEachern & A. Indira. 1 edition, 2013.
Cengage

Course Outline:
Ses
sio
Topic
n Referenc
No.
Introduction to Economic
Analysis:
Macroeconomics Vs.
1 Microeconomics, Goals &
Objectives of Macroeconomics,
Tools of Macroeconomic Policy,
Key concepts of macroeconomics-
GDP and its importance.
Chapters
Case /Reading
–
Learning Outcomes article/ Lecture /
Activity
e pages
After reading this chapter,
students should be able to
understand:
• The scope of macroeconomics
in the corporate world.
• Recognize a variety of Introductory lecture pp. 2-3.
situations where the
macroeconomic ideas can be
applied.
• Explain the goals of
macroeconomic inquiry.

Irish Economy: A
Model of Success
2 Case discussion:
(MEBE0001)
(IBSCRC Case)

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After reading this chapter,
Measuring National Output/ students should be able to:
Income: • Define macroeconomics and
Circular flow of macroeconomic explain how economic
activity, Two sector model, Three indicators like GDP are used pp.
sector model, Four sector model, to assess the state of the Video 1: 10-12
Nominal GDP vs. Real GDP, GDP economy. Time to fix GDP? 14-15
3
deflator, GDP at market price, GDP • Differentiate between and https://voxeu.org/con 23–26
at factor cost, GNP, NNP, NNP at calculate nominal and real tent/time-fix-gdp 35,
factor cost, NDP at factor cost, IIP, GDP 38-39.
Release of GDP figures and the • Describe economic growth
economic outlook and reaction of • Identify key institutional
the corporate sector. factors that contribute to
economic growth.
Methods for measuring National
Income:
Product Approach, Income
After reading this chapter,
Approach, Expenditure Approach,
students should be able to
Problems of measuring GDP, Real pp.
understand:
Vs Nominal Income, other 26 -30,
4 • What GDP measures- and
measures of development: 35-37,
what doesn’t?
Measures of Wellbeing such as HDI, 57-61.
• Why aggregate income equals
Gross National Happiness Index,
aggregate output?
etc., Economic Growth vs Economic
Development, The implication of
Economic Growth
National Income
Accounting: A Case
5 Case discussion: Study of China
(MEBE0004)
(IBSCRC Case)
After reading this chapter,
Aggregate Demand and
students should be able to
Aggregate Supply: Classical and
understand:
Keynesian Approach:
• The nature of aggregate
demand and aggregate
Meaning of Aggregate Demand and
supply.
Aggregate Supply, Aggregate
• The components of aggregate
Demand and Supply Curve, Factors
6 demand and their pp. 5-9,
shifts aggregate demand and
& determinants. 98-114,
supply curve.
7 • Why the short-run AS curve 198
slopes upward?
Determination of price level
• How aggregate demand and
through aggregate demand and
aggregate supply affect the
supply, Aggregate supply curve in
economy?
Classical view. The aggregate
• Use the AD-AS model to
supply curve in the Keynesian
explain the equilibrium levels
view. Says Law of Market.
of real GDP and price level

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• Examine factors that shift
aggregate supply and
aggregate demand
• Illustrate economic growth,
unemployment, and inflation
using the AS/AD model
Determination of Equilibrium
Income - Keynesian Approach:
Consumption function, Keynes
Psychological Law of Consumption,
Marginal Propensity to Consume,
Marginal Propensity to Save,
After reading this chapter,
Average Propensity to Consume,
students should be able to
Average Propensity to Save, PP.
understand:
Determinants of Consumption, 44-45,
• Determinants of the
Factors influencing consumption, 47,
Consumption function.
Saving function, Investment 63-64,
• Factors influencing
8 function, Investment demand 193,
investment, consumption,
curve, Shift in the investment 199-205
saving.
demand curve, Determinants of 326-336
• The relevance of Keynesian
Investment, Types of investment- 352-360
theory.
Private Vs,. Public, Induced Vs. 364-373
• Implications of spending and
Autonomous, Gross vs. Net
saving in an economy.
investment, Business fixed
investment, Residential
investment, Inventory investment,
Implications of Investment in an
Economy, how a change in interest
rate affect aggregate demand
Germany's Economic
Dilemma: To Save or
9 Case discussion: to Spend?
(FCP0006)
(IBSCRC Case)
Product Market: Ref Article 1:
Concept of Multiplier – After reading this chapter, Government spending
Assumptions of Multiplier, students should be able to multipliers in good
Importance of multiplier, Simple understand: times and in bad: pp.
multiplier, Two-sector and three- • What is investment multiplier, Evidence from US 205-211
10
sector model, Types of the balanced budget multiplier, historical data 403-405
multiplier, Investment multiplier, foreign trade multiplier and https://voxeu.org/arti 414, 438
foreign trade multiplier, Balanced what are the implications of cle/us-fiscal-
Budget multiplier. The multiplier them? multiplier-historical-
in the presence of tax. evidence

Test-1 (Objective type):

11 Coverage: sessions from 1 to 10
Weightage 20

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 IBS Hyderabad (Academic Year – 2019-20)
Money Market:
What is money? The evolution of
money and forms- Barter,
Commodity money, Paper money,
bank deposits. The functions of
money (a) Money as a medium of
exchange (b) Money as a measure
of value(c) Money as a store of
value(d) The standard of Deferred
payments. The determinants of After reading this chapter,
demand for money, The supply of students should be able to
money, The sources of money understand:
supply, Central bank and high • What money is?
powered money, Measurement of • Describe how money is
high powered money, Purpose of created by bank lending Video 2:
measuring money supply, The • Explain the functions of Demonetization
Keynesian demand for money money, and define liquidity. https://www.youtube.
12 pp.
function (a)The transaction • How does the money com/watch?v=sIYBxa
& 382-396
demand for money(b) the multiplier work? 4IB5I&index=22&list=
13 513
Precautionary demand for money • Keynesian theory of demand PLzBocLh5ipFQCM5F
(c) The speculative demand for for money. 9VfzBe_fesl_wYWXA
money. The Keynesian theory of • Measures of the money
interest rate, Components of the supply. Determinants of
money supply- M1, M2, M3 and M4, money supply and demand for
Measurement of money supply. money.
Implications of the money supply. • How do changes in the money
Money Multiplier Approach, Role supply affect the economy?
of Banking systems and creation of
money, Determinants of money
supply, how the interest rate is
determined? Real Vs. Nominal
interest rates, Liquidity, how do
changes in the money supply affect
the economy? Negative Interest
rates and its implications on an
economy.
India`s
Demonetization: A
Short-Term Loss or a
14 Case Discussion:
Long-Term Gain?
(ECON061)
(IBSCRC Case)
Price Stability: pp.
Video 3:
Inflation Vs. deflation, Various After reading this chapter, 39-44.
Venezuela’s Inflation
15 measures of inflation, Types of students should be able to 6,
to hit 1,000,000%
& inflation-Low inflation, Galloping understand: 119-127
https://youtu.be/SCz1
16 inflation, Hyperinflation, Threshold • The meaning of price 130-134
x5-tgig
inflation. Demand-pull Vs. Cost- stability/instability. 176-185
push inflation, Stagflation, 514-519
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 IBS Hyderabad (Academic Year – 2019-20)
Expected Vs. unexpected inflation,
core inflation Vs. Headline
inflation, the role of government
and RBI to control inflation,
Economic impacts of inflation, is a
little inflation is good for the
economy? Price in the AD-AS
framework, The Phillips curve,
Short-run Philips curve, and Long-
run Philips curve.
17 Case Discussion:
Business Cycles &
Unemployment:
Features of Business Cycles:
(a) Aggregate economic activity
(b) Expansions and contractions
(c) Co-moments (d) Recurrent but
not periodic (e) Persistence.
Phases of the business cycle:
(a) Boom (b) Peak (c) Recession or
contraction (d) Through (e)
Recovery.
Business cycle facts: (a) Direction
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(b) Timings.
Business cycle theories:
Exogenous vs. internal theories,
Demand induced cycle, Monetary
theories, Political theories of
business cycle, Real business cycle
theories, Supply shocks theory,
Can we predict the business cycle?
Types of unemployment
Okun's Law
Economic Impact of
unemployment.
• Define inflation and explain Ref Article 2:
how the rate of inflation is Examples of
calculated. hyperinflation from
• How inflation is measured? Zimbabwe.
• Identify the consequences of http://www.nytimes.c
inflation om/2006/05/02/worl
• Why d/africa/02zimbabwe.
Government/Policymakers html?_r=1&oref=slogi
and the public are more n
concerned with inflation?
• How does the
Government/Monetary
authority deal with inflation?
• How an unemployment-
inflation trade-off arises?
Venezuela's
macroeconomic
crisis: An enduring
ordeal of the
worsening economy
with alarming
inflation, (ECC0058)
(IBSCRC Case)
After reading this chapter,
students should be able to
understand:
• Explain the goals of
macroeconomic inquiry.
• Explain business cycles,
including recessions, pp. 6, 10-
depressions, peaks, and 18, 135,
troughs 143-146
• Theories of Business cycle. 153-170
• Impact and implication of the 494-498
business cycle. 500-503
• How unemployment is 564-565
measured? 577, 595
• Unemployment and its major
types
• Examine the causes of
unemployment, including
cyclical, frictional, structural,
and natural unemployment.
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 IBS Hyderabad (Academic Year – 2019-20)
Can we eradicate unemployment
completely?
Brazil's Economic
Crisis: A Tough Road
19 Case Discussion:
Ahead (ECON065)
(IBSCRC Case)
After reading this chapter,
students should be able to
understand:
Monetary Policy: • How monetary policy affects
Objectives of monetary policy, macro outcomes?
Instruments of monetary policy- • The constraints on monetary
open market operation, bank rate, policy.
Video 4:
cash reserve ratio, statutory • How monetary policy affects
Monetary Policy and
liquidity ratio, the repo rate, the liquidity of an economy? pp.
Inflation Targeting
reverse repo rate, marginal • Explain the structure, functions, 189-193
Part 1
standing facility, liquidity and responsibilities of the 253-268
20 https://www.youtube.
adjustment facility, market central bank. 405-408
com/watch?v=WGoAt
stabilization scheme. • What are the monetary policy 410-411
z2cUBU&list=PLzBocL
Easing vs. tightening of monetary instruments to deal with 547
h5ipFQCM5F9VfzBe_fe
policy, Expansionary and macro-economic problems such
sl_wYWXA&index=8
contractionary monetary policy as low economic growth,
Impact of Monetary Policy. inflation, and business cycles?
Impact of demonetization on the • Explain how monetary policy
Indian economy. affects GDP and interest rates.
• Explain and show how
monetary policy impacts
aggregate demand
Reserve Bank of
India's Tightening
Monetary Policy: An
21 Case Discussion: Impediment to
Economic Growth?
(MOP0023IRC)
(IBSCRC Case)

Coverage: sessions from 11 to

22 Test-2 : Weightage 20
21

Fiscal Policy:
After reading this chapter, Video 5:
Objectives of Fiscal Policy, Types of
students should be able to Fiscal Policy, Fiscal
Fiscal Policy- Discretionary Vs.
understand: Rules, and the GST I
Non-discretionary Fiscal Policy, pp.
• The tools of fiscal policy. and II Part 1
Expansionary Vs. Contractionary 211-219
23 • How fiscal stimulus or https://www.youtube.
Fiscal Policy. Fiscal instruments- 268-286
restraint affects macro com/watch?v=CPRy2-
Taxes, Public expenditure, Public 429-433
outcomes? biSH4&list=PLzBocLh
borrowings. Tax structure- Direct
• Role of Fiscal Policy during 5ipFQCM5F9VfzBe_fes
and Indirect tax. Impact of GST on
macro-economic imbalances. l_wYWXA&index=5
the Indian economy. Role of Fiscal

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 IBS Hyderabad (Academic Year – 2019-20)
Policy during inflation and • Identify the major spending
deflation. Laffer curve, Fiscal categories and major revenue
Policy, and stabilization, types of sources in the budget
deficits, Public debt, Crowding-out • Explain fiscal policies,
effect. including automatic,
expansionary, and
contractionary fiscal policies.
• Differentiate between deficit
and debt.
• Who bears the burden of the
national debt?
• Explain how economic growth
or decline can influence a
budget surplus or budget
deficit
Ireland: Turnaround
by Tax Policy
24 Case Discussion:
(MEBE0024)
(IBSCRC Case)
IS-LM Framework:
After reading this chapter,
Product and Money Market
students should be able to
Equilibrium, Hicks-Hansen Model:
understand:
IS-LM analysis. The slope of the IS
• What is the goods market? pp.
25 curve, Shift in the IS curve, Shift of
• What is the money market? 224-249
the LM curve. Monetary Policy and
• How does equilibrium reach
its impacts on the LM curve. Fiscal
through the money market
Policy and its impact on the IS
and goods market?
curve.
Global Financial
Crisis and Its Impact
on Real and
26 Case Discussion: Financial Sectors in
India
(MEBE0038)
(IBSCRC Case)
After reading this chapter,
students should be able to
Open-Economy Framework: understand:
International Vs. Domestic trade, • Why nations go for
The advantages of international international trade?
trade. Theories of International • Explain the absolute pp.
27
Trade, Theory of Absolute and advantage and comparative 290-291
Comparative advantage, advantage
Protection and WTO, • How trade flows are affected
Issues related to the tariff. by Fiscal Policy?
• What are the theories of
international trade?

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 IBS Hyderabad (Academic Year – 2019-20)
• Explain the origin and role of
the World Trade Organization
(WTO)
• How trade barriers affect
prices, output, and income?
After reading this chapter,
students should be able to
understand:
• Define currency exchange
Open-Economy Framework:
rates and explain how they
Fixed exchange rate,
influence trade balances
Floating exchange rate,
• How changes in the exchange Video 6:
Managed floating exchange rate, pp.
rate affect prices, output, and Exchange rates and
Nominal exchange rate, 293-299
trade flow? inflation
28 Real exchange rate, 535-541
• Analyze how supply and https://voxeu.org/con
Effective Exchange rate, 559-561
demand affects foreign tent/exchange-rates-
Determination of Exchange Rate, 566-567
currencies and exchange rates and-inflation
Factors influencing the exchange
• Explain how appreciating or
rate, Participants of foreign
depreciating currency affects
exchange markets.
exchange rates
• Explain how the balance of
trade (surplus or deficit)
affects the domestic economy
Renminbi
Revaluation: Does
29 Case Discussion: Economy Need It?
(MAC0029IRC)
(IBSCRC Case)
Open-Economy Framework:
After reading this chapter, Ref Article 3:
Balance of Payments
students should be able to A primer on balance-
Current Account,
30 understand: of-payments crises pp.
Capital Account, Financial account.
& • The BoP crisis and its https://voxeu.org/con 291-293
The effects of Crude oil /Gold price
31 implications. tent/sudden-stops- 542
on Current account.
• Why BoP should always be in primer-balance-
Globalization and Global
balance? payments-crises
imbalances.
Trade Deficits,
Current Account
Deficits, and
Exchange Rates in
32 Case Discussion:
the US: The Policy
Implications
(MEBE0026)
(IBSCRC Case)

Test-3: Group Project

33
Submission (Weightage 10)

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 IBS Hyderabad (Academic Year – 2019-20)
Expectations from Students
a. Students must report to the respective sessions well before the announced time. Latecomers will not
be permitted to join the class after the scheduled time. If late, the attendance for that session will be
marked as absent.
b. Read the Case Study/material well prior to the class discussion. He/she is also expected to read the
chapter indicated in the course plan as the faculty directs.
c. In the class discussion, the student is expected to participate actively and contribute to individual and
group learning. Evaluation is based on active participation.

Evaluation Timelines
Keeping in line with continuous evaluation at IBS the following evaluation schedule has been drawn.
Students are expected to go through the dates/sessions mentioned and prepare accordingly.

Component Component Expected slot / Marks declaration Weightage

Number due date by
1. Class Participation (CP1) 1 Session 16 Session 18 5
2. Class Participation (CP2) 2 Session 32 Session 33 5
3. Test I (Objective type) 1 Session 11 Session 13 20
4. Test II (Descriptive type) 2 Session 22 Session 25 20
5. Project report 3 Session 31 Session 33 10
6. End term exam As per the term As per the 40
end exam Examinations
schedule department’s
schedule
Total 100

Electronic and Web resources: Swayam Videos, Syndicated Databases

1. Swayam videos Links

• Fiscal Policy, Fiscal Rules, and the GST I and II Part 1
https://www.youtube.com/watch?v=CPRy2-
biSH4&list=PLzBocLh5ipFQCM5F9VfzBe_fesl_wYWXA&index=5
• Monetary Policy and Inflation Targeting Part 1
https://www.youtube.com/watch?v=WGoAtz2cUBU&list=PLzBocLh5ipFQCM5F9VfzBe_fesl_wYWX
A&index=8
• Global and Indian Economic history Part 1
https://www.youtube.com/watch?v=Yym8_1vqNvU&list=PLzBocLh5ipFQCM5F9VfzBe_fesl_wYWXA
&index=3&t=0s
• Reviewing Macro-Economic Developments & Understanding Macro-Economic Policy
https://www.youtube.com/watch?v=sNCvmXoIDzk&list=PLzBocLh5ipFQCM5F9VfzBe_fesl_wYWXA
&index=11&t=0s
• Economic Crises and the Twin Balance Sheet Problem in India
https://www.youtube.com/watch?v=FylrPaiVVs8&list=PLzBocLh5ipFQCM5F9VfzBe_fesl_wYWXA&i
ndex=13&t=0s
• Demonetization
https://www.youtube.com/watch?v=sIYBxa4IB5I&index=22&list=PLzBocLh5ipFQCM5F9VfzBe_fesl
wYWXA

2. Web game:
• Chair the Fed: A monetary policy game

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 IBS Hyderabad (Academic Year – 2019-20)
https://www.frbsf.org/education/teacher-resources/chair-federal-reserve-economy-simulation-
game/

• Chair the Fed Game Videos

https://www.frbsf.org/education/teacher-resources/chair-federal-reserve-economy-simulation-
game/chair-the-fed-game-videos/

3. Web resources:
1. Real-world economics
https://www.aeaweb.org/resources/teachers/economics-concepts-examples-in-research

2. Introduction to macroeconomics
http://www.econweb.com/macro/outline.htm

3. Open source macroeconomics

https://openstax.org/details/books/principles-macroeconomics-2e

4. Output and National Income

http://www.econweb.com/macro/gdp/notes.html#4

5. Banks, money, and the credit market

https://core-econ.org/the-economy/book/text/10.html

6. The rise of digital currency

https://voxeu.org/article/rise-digital-currency

7. Inflation, unemployment, and monetary policy

https://core-econ.org/the-economy/book/text/15.html#151-whats-wrong-with-inflation

8. Unemployment and fiscal policy

https://core-econ.org/the-economy/book/text/14.html

9. Fiscal policy is no free lunch: Lessons from the Swedish fiscal framework for fiscal targeting
https://voxeu.org/content/fiscal-policy-no-free-lunch-lessons-swedish-fiscal-framework-
fiscal-targeting

10. What can Europe learn from Sweden? Four lessons for fiscal discipline
https://voxeu.org/article/what-can-europe-learn-sweden-four-lessons-fiscal-discipline

11. What is Globalization - Guide from the Peterson Institute

https://www.piie.com/microsites/globalization/what-is-globalization.html

12. The Global Economy

https://www.theglobaleconomy.com/India/Economic_growth/

13. Integration, Currency Unions, and Balance of Payments

https://www.ineteconomics.org/conference-session/integration-currency-unions-and-
balance-of-payments

14. The Great Depression, golden age, and global financial crisis
https://core-econ.org/the-economy/book/text/17.html

4. Data Sources:
https://www.aeaweb.org/resources/data
https://fred.stlouisfed.org/
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A Brief about the Faculty:

12