Macroeconomics II

Semester and Year Offered: IV

Course Coordinator and Team: Jyotirmoy Bhattacharya, Parag Waknis

Email of course coordinator: parag[at]aud[dot]ac[dot]in

Pre-requisites: Macroeconomics I

Aim: This course aims to give students a firmer understanding of macroeconomic theory. This course will continue from its sister course in the previous semester covering the standard economic analysis of the behaviour of economic aggregates like GDP, employment and the price level in a market economy characterized by the use of money and credit, bringing in also the open economy context.

As against a principles course, where a lot of concepts are introduced, in this class models are built to gain a deeper understanding of the concepts. Stylized facts about macroeconomic data will be used to motivate theories or assess competing ones. Policy implications of these theories will also be studied.

Macroeconomics II will cover the New Classical and New Keynesian schools of thought. If time permits then other schools could be included.

Course Outcomes:

As learning outcomes, at the end of the course students should be able to:

1. list the stylized facts about business cycles in developing countries, especially for India.
2. derive the labor supply curve using consumption leisure decision of the representative consumer.
3. describe a one period micro-founded model of the macroeconomy with the help of a graph.
4. demonstrate the consumption savings decision with the help of a graph.
5. derive the labor and capital demand curve by solving the representative firm's profit maximization problem.
6. use the real intertemporal model with investment model to highlight the differences between different schools of thought in macroeconomics.
7. identify how changes in key assumptions about the behavior of economic decision makers and key markets in the economy lead to competing macroeconomic theories.
8. demonstrate how judgment about effectiveness of a particular policy depends on the theory or model used to analyse them.

Brief description of modules/ Main modules:

1. Consumer and Firm behavior in the economy
2. A closed economy one period model of the macroeconomy
3. A Two Period Model: The consumption savings decision and the credit markets
4. Role of Credit Market Imperfections
5. A Real Intertemporal Model with Investment.
6. Money, Business Cycles, and Monetary Policy
7. Business Cycle Models with Flexible Prices-Real Business Cycles
8. New Keynesian Economics: Sticky Prices
9. International Trade in Goods and Assets

Assessment Details with weights:

Reading List:

The main textbook followed for the course is as follows:

1. Stephen D. Williamson (2014), Macroeconomics, 5th Edition, Pearson

ADDITIONAL REFERENCE:

The following textbooks (2&3) are similar in approach to the Williamson’s text. The one by Chugh is slightly advanced with explicit use of calculus. The last article is the source for details about Indian business cycles.

1. Barro R (2008). Macroeconomics: A Modern Approach. Thomson/Southwestern.
2. Chugh S (2015), Modern Macroeconomics, The MIT Press.
3. Ghate, Chetan & Pandey, Radhika & Patnaik, Ila, 2013. "Has India emerged? Business cycle stylized facts from a transitioning economy," Structural Change and Economic Dynamics, Elsevier, vol. 24(C), pages 157-172.