POST-GRADUATE PROGRAMME IN

MANAGEMENT COURSE OUTLINE COVER PAGE

AY 2022-2023 TERM: II

TITLE OF THE COURSE: MACROECONOMICS CREDITS: 4

Name of the Faculty Faculty Block/ 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. Deepak Sethia C203 sethiad@iimidr.ac.in +91-731-2439579
Prof.Subhasankar B 205 subhasankarc@iimidr.ac.in +91-731-2439549
Chattopadhyay

Course Pre-requisite (if any): NIL Remarks for Participants (if any): NIL
Resource details to be purchased (Text Book/Software/License/Simulation/Resource): (AS
MENTIONED IN THE OUTLINE) TEXTBOOK:
Dornbusch, R., Fischer, S. & Startz, R. (2011), Macroeconomics, 11th Edition. New Delhi: Tata
McGraw-Hill. (Hereafter referred to as Dornbusch (2011).) Students should own this book.

Purchase of resources only for the exam(s) purpose when the same is not used and debriefed inany
of the classes in that course is not allowed.

Please indicate the changes made in the course outline based on the measurement ofassurance of
learning (closing the loop)/student feedback: Nil
The following detail is to be filled in by Visiting Faculty (VF) Instructor only:

Please provide feedback, in case the same course was taught earlier in the Programme:
S. No. Instructor’s name Course Name Course Instructor’s
feedback feedback
1
2
Note (from PGP Office regarding reading materials):

1. Only those cases/readings/articles will be procured that are available in HBSP/ Darden
Pub./IIMA case unit websites.
2. If Instructors (Internal faculty or visiting faculty) plan to use their own cases/articles, they
areexpected to provide the same for classroom use. These cases will not be procured by PGP
Office.

Signature: Course Instructor/Area Chair

CONSULTATION TIME FOR STUDENTS
Name of the Faculty Timing
Prof. Dipayan D. Chaudhuri 3.00 p.m. to 4.00 p.m. on the day of the classes or by
Prof. Ganesh Kumar N appointment on other days
Prof. Deepak Sethia
Prof.Subhasankar Chattopadhyay

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 - AggregateSupply. We begin
the course with an understanding of national income accounts. We then set up 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 the broad fiscal policies of the government and their impact on the economy.

In the context of the globalization of economies, we will discuss the linkages of the national economy with
global economy and explore interdependencies among countries. We have allocated 5 out of the total 20
sessions for international linkages of the 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 participantswith 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.

LEARNING OUTCOMES Expected Learning Outcomes and Associated Measures

At the end of the course, the 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/ Assessment Tool(s)

Outcome
1. Will be able to understand 1.2 Identify the decision Embedded Question(s)in
macroeconomic problemalong with sources. Mid-Term
environment
 2. Will be able to appreciate
linkages between
domestic and world
economy
3. Will be able to understandt
rationale
behind macroeconomic
policies
4. Apply tools of IS-LM and or
AS-AD to understand the
impact of macroeconomic
policies
NA Embedded Question(s)in
End-Term
1.3 Identifies and presents Embedded Question(s)in
appropriate evidence End-Term
supporting the analysis of
alternatives
1.4 Evolves one’s own Embedded Question(s)in
perspective or takes a position / End-Term
makes a judgement

EVALUATION
Individual Component Group Component 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 academic activity. It is a violation of trust
between the Institute and its stakeholders. Plagiarism, fabrication, deception, cheating andsabotage 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 the dynamics of price-output determination for an economy in differenttime
horizons and to understand basic concepts in national income accounting.

Session 1&2 Introduction and National Income Accounting

Objective: To discuss the dynamics of price-output determination for an economy in

different time horizons and to understand basic concepts in national income
accounting
Reading: Chap. 1: Introduction, pp.2-18;
Chap 2: National Income Accounting, pp. 22-47, Dornbusch (2011).
MODULE II: Economy in the Short Run

Module Objective: To discuss the behaviour of the 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 andInvestment

Objective: To understand the process of determination of national income in a

market-driveneconomy.
Reading: Chap. 09: Income and Spending- Aggregate Demand and Equilibrium Output,
TheConsumption Function and Aggregate Demand, The Multiplier, pp.194-
202, Dornbusch (2011).
Session 4 The Goods Market: Models of National Income Determination II:

Objective: Consumption, Investment, and Government. To understand the

role of government in determining the national income.
Reading: Chap. 09: Income and Spending -The Government sector, The budget, The
full-employment budget surplus pp. 206-215, Dornbusch (2011).

Session 5 Models of National Income Determination - III

Objective: Goods Market (IS Curve)To derive IS- curve from the goods market.
Reading: Chap.10: Money, Interest, And Income- The Goods Market and the IS
Curve, The Money Market and the LM Curve, pp. 219-232 in Dornbusch
(2011).
Session 6 The Money Market: Demand for Money

Objective: To discuss the components of money stock and motives for holding money.
Reading: Chap. 15: The Demand for Money- Components of the Money Stock, The
Functions of Money, The Demand for Money: Theory, Empirical Evidence,
pp.377-392 in Dornbusch (2011).
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: Chap. 16: The Fed, Money, And Credit- Money Stock Determination: The
Money Multiplier, The Instruments of Monetary Control, The Money
Multiplier and Bank Loans, Control of the Money Stock and Control of the
Interest Rate, Money Stock and Interest Rate Targets, pp. 398-411 in
Dornbusch (2011).
Samuelson, P. A., Nordhaus, W.D., & Chaudhuri, S. (2012). Monetary Policy
and the Economy in Macroeconomics (pp. 297-301). New Delhi: Tata McGraw
Hill.
 Session 9 Models of National Income Determination - III: Goods & Money Markets (IS-
LM Model)
Objective: To derive the LM curve and to discuss equilibrium conditions for goods and
moneymarkets
Readings: Chap. 10: Money, Interest, And Income- The Money Market and the LM
Curve,Equilibrium in the Goods and Money Markets, Deriving the Aggregate
Demand Schedule, pp. 232-241 in Dornbusch (2011).
D'Souza, E. (2014). IS-LM in India in Macroeconomics (pp. 223-225). NewDelhi:
Pearson Education.

Session 10 Stabilization Policies in a Closed Economy: Monetary Policy

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

economy.
Reading: Chap. 11: Monetary and Fiscal Policy- Monetary Policy, Fiscal Policy and
Crowding Out, pp. 248-280 in Dornbusch (2010).
Chap.12: Monetary and Fiscal Policy- The zero lower bound and
unorthodox Monetary Policy, pp. 259 in Dornbusch (2011).
Session 11 Stabilization Policies in a Closed Economy: Fiscal Policy

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

Readings: Chap. 11: Monetary and Fiscal Policy- Fiscal Policy and Crowding Out, The
Composition of Output and the Policy Mix, The Policy Mix in Action, pp. 262-271 in
Dornbusch (2011).

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 a closed economy in the medium and long
run.

Session 12 Aggregate Demand

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. 5: Aggregate Demand and Supply, pp. 97- 114 in Dornbusch (2011).
Chap. 10: Money, Interest and Income, pp.241-242.
Session 13 Aggregate supply & Phillips curve

Objective: To understand aggregate supply and wage-unemployment relationship in the

short run and long run.
Reading: Chap. 6: Aggregate Supply: Wages, Prices and Unemployment, pp. 118-134 in
Dornbusch (2011).
 Sessions 14 & 15 Inflation and macroeconomic policy

Objective: To understand the inflationary process and stabilization policy tools to control
inflation
Reading: Chap. 7: pp. 131-140 Dornbusch (2011).
Nidugala, G. K. (2015). High Inflation During 2009-13 and RBI's Response
[Class handout]. IIM Indore, Indore, India.
D'Souza, E. (2014). Unemployment and Wages in India in Macroeconomics (pp.
193-194). New Delhi: Pearson Education

Module IV. Short Run and Long run models with an open economy
In this module, we discuss short and long-run models in an open economy framework. The
module will consider the external sector – trade and capital flows, in the models of national
incomedetermination with fixed and flexible prices.

Session 16 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: Chap.12: International Linkages- The Balance of Payments and Exchange
Rates,The Exchange Rate in the Long Run, Trade in Goods, Market
Equilibrium, and the Balance of Trade, pp. 284-298 in Dornbusch (2011).
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 17&18 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: International Linkages- Capital Mobility, The Mundell-Fleming Model:
Perfect Capital Mobility under Fixed Exchange Rates, Perfect Capital Mobility
and Flexible Exchange Rates, pp. 299-312 in Dornbusch (2011).

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: International Adjustments and Interdependence, pp. 534-550 in
Dornbusch (2011).
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
Dornbusch, Macroeconomics New Delhi: Tata 11th Edition 2011
R.,Fischer, S. McGraw-Hill
& Startz, R.

Additional Readings (This book need not be purchased)

D'Souza, E. (2014). IS-LM in India in Macroeconomics (pp. 223-225). New Delhi: Pearson Education.
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