Module I:

Development of macroeconomic schools of thought:

1. Classical Economics:
o Emerged in the late 18th century with economists like Adam Smith and
David Ricardo.
o Advocated for free markets and the idea of self-regulating economies.
o Emphasized the importance of supply-side factors, such as production and
savings, in determining economic outcomes.
o I believe in Say's Law, which states that supply creates its own demand and
that markets naturally tend towards equilibrium.

2. Keynesian Economics:
o Developed by John Maynard Keynes in the early 20th century in response to
the Great Depression.
o Challenged classical ideas and argued that markets are not always self-
regulating.
o Highlighted the role of aggregate demand in determining economic activity.
o Advocated for government intervention through fiscal policy to stimulate
demand during economic downturns.
o Emphasized the importance of discretionary policy and the use of public
spending to achieve full employment.

3. Post-Keynesian Economics:
o Evolved as a response to the perceived limitations of Keynesian economics.
o Emphasizes the role of uncertainty, power relations, and institutions in
shaping economic outcomes.
o Rejects the assumption of rational expectations and perfect competition.
o Focuses on the role of financial systems and the impact of income
distribution on economic performance.
o Supports government intervention, but with a greater emphasis on income
redistribution and addressing structural issues in the economy.
Aggregate Consumption Function:

 Represents the relationship between aggregate consumption expenditure and

aggregate disposable income.
 Consumption is a function of income, with a portion of income being consumed.
 Expressed as C = cY, where C is consumption, c is the marginal propensity to
consume (MPC), and Y is income.
 Influenced by factors like consumer confidence, wealth, interest rates, and
government policies.

Aggregate Investment Function:

 Represents the relationship between aggregate investment expenditure and

factors like interest rates, business expectations, and profitability.
 Investment includes spending on capital goods, research, and new projects.
 Expressed as I = I(r), where I is investment and represent the interest rate.
 Interest rates, business expectations, technological advancements, government
policies, and economic conditions influence investment decisions.
 Investment function is more volatile and sensitive to changes compared to the
consumption function.