Contents – Macroeconomics: Theory and Policy

Contents

List of Figures

Preface

UNIT I INTRODUCTION

1 An Introduction to Macroeconomics

Macroeconomics and Microeconomics

Background of Macroeconomics

Need to Study Macroeconomics

Concepts in Macroeconomics

Summary

Review Questions

2 The Circular Flow of Income and Expenditure

Introduction

The Circular Flow of Income in a Two Sector Economy

The Circular Flow in a Three Sector Economy

The Circular Flow of Income in a Four Sector Economy

Summary

Review Questions

UNIT II NATIONAL INCOME AND ITS DETERMINATION

3 National Income

Introduction

National Income Aggregates

Measurement of National Income

Summary

Review Questions

4 The Classical Model of Income Determination

Introduction

Say’s Law

Output and Employment in the Classical Model

A Criticism of the Classical Model

Summary

Review Questions

5 The Keynesian Model of Income Determination in a Two Sector Economy

Introduction

Aggregate Demand in a Two Sector Economy

Consumption

Saving as a Counterpart of the Consumption Function

Determination of Equilibrium Income or Output in a Two Sector Economy

Summary

Review Questions

6 Shifts in the Aggregate Demand and The Multiplier

Introduction

Shifts in Aggregate Demand and the Multiplier

Uses and Limitations of the Multiplier

Applicability of the Multiplier to Less Developed Countries

The Multiplier and the Paradox of Thrift

Summary

Review Questions

7 The Keynesian Model of Income Determination in a Three Sector Economy: Introduction of the Government Sector

Introduction

Determination of Equilibrium Income or Output in a Three Sector Economy

Multipliers in a Three Sector Economy–The Fiscal Multipliers

Summary

Review Questions

8 The Keynesian Model of Income Determination in a Four Sector Economy: Introduction of the Foreign Sector

Introduction

Determination of Equilibrium Income or Output in a Four Sector Economy

Equilibrium Income and Output

Introduction of Government Transfer Payments in a Four Sector Model

Multiplier in a Four Sector Economy–The Foreign Trade Multiplier

Summary

Review Questions

UNIT III THEORIES OF CONSUMPTION AND INVESTMENT SPENDING

9 Theories of Consumption

Introduction

Absolute Income Hypothesis

Relative Income Hypothesis

Permanent Income Hypothesis

Life Cycle Hypothesis

Other Factors Influencing Consumption

Summary

Review Questions

10 Theories of Investment Spending

Introduction

Basic Concepts

The Decision to Invest

Changes in the Rate of Interest, the MEC and Capital Accumulation

Theories of Investment

Summary

Review Questions

UNIT IV AN ANALYSIS OF THE MONETARY SECTOR

11 Money

Introduction

Evolution and Forms of Money

Definition of Money

Money and Near Money

Functions of Money

Significance of Money

Summary

Review Questions

12 Supply of Money

Introduction

Measures of Money Supply in India

The Theory of Money Supply

The Process of Credit Creation and the Deposit Multiplier

Summary

Review Questions

13 Demand for Money and the Rate of Interest: The Classical Approach

Introduction

Fisher’s Transactions Approach to the Quantity Theory of Money

The Cambridge Cash Balance Approach

The Classical Theory of Interest

The Loanable Funds Theory

Summary

Review Questions

14 Demand for Money: The Keynesian Approach

Introduction

The Keynesian Theory of the Demand for Money

The Keynesian Theory of Interest

Variations in the Interest Rate

A Criticism of the Keynesian Approach

Summary

Review Questions

15 Demand for Money: The Post-Keynesian Approach

Introduction

Portfolio Theories of Demand for Money: Tobin’s Port Folio Balance Theory

Transactions Theories of Demand for Money: Baumol Tobin Model of Cash Management

Modern Quantity Theory of Money: Friedman’s Model

Summary

Review Questions

UNIT V THE IS–LM FRAMEWORK: EQUILIBRIUM IN THE GOODS AND MONEY MARKETS

16 The IS–LM Model for a Two Sector Economy

Introduction

The IS–LM Model in a Two Sector Economy

The Goods Market Equilibrium in a Two Sector Economy: The IS Curve

The Money Market Equilibrium in a Two Sector Economy: The LM Curve

Equilibrium in the Two Markets: The Goods Market and Money Market

Disequilibrium to Equilibrium: The Process of Adjustment

A Shift in the IS–LM Curves

Summary

Review Questions

17 The IS–LM Framework for a Three Sector Model

Introduction

The IS–LM Model for a Three Sector Economy

The Goods Market Equilibrium in a Three Sector Economy: The IS Curve

The Money–Market Equilibrium in a Three Sector Economy: The LM Curve

Equilibrium in the Goods and the Money Market in Three Sector Economy

Shifts in the IS Curve Due to Changes in Fiscal Policy

Shifts in the LM Curve Due to Monetary Policy

The Elasticities of IS and LM Curves and the Effectiveness of Monetary and Fiscal Policies

Summary

Review Questions

18 Aggregate Demand and Aggregate Supply

Introduction

The Aggregate Demand Curve

The Aggregate Supply Curve

The Aggregate Demand and Aggregate Supply Model

The Effects of a Monetary Expansion

Effects of a Decrease in Government Budget Deficit

Effects of a Shift in Aggregate Supply: Supply Shocks

The Supply Side Economics

Summary

Review Questions

UNIT VI INFLATION AND UNEMPLOYMENT

19 Inflation

Introduction

Meaning of Inflation

Measurement of Inflation

The Economic and Social Effects of Inflation

Inflation in India

Summary

Review Questions

20 Theories of Inflation

Introduction

Monetarist Approach to Inflation

Keynesian Approach to Inflation

Modern Approach to Inflation

Control of Inflation

Summary

Review Questions

21 Unemployment

Introduction

Unemployment and Related Terms

Types of Unemployment

Costs of Unemployment

Relationship Between Inflation and Unemployment

Modern Phillips Curve

Sacrifice Ratio

Summary

Review Questions

UNIT VII THE OPEN ECONOMY MACROECONOMICS AND THE FRAMEWORK OF MACROECONOMIC POLICIES

22 Foreign Exchange

Introduction

Foreign Exchange Market

Exchange Rate Systems

Exchange Rate Determination

Fixed Versus Flexible Exchange Rate

Summary

Review Questions

23 Balance of Payments

Introduction

Meaning and Structure of Balance of Payments

Double Entry Book Keeping

A Disequilibrium in the Balance of Payments

Kinds of Disequilibria in the Balance of Payments

The Process of Adjustment in the Balance of Payments

Analysis of Performance of Indian Economy in the External Sector

Summary

Review Questions

24 Macroeconomic Policies

Introduction

Meaning and the Advent of Macroeconomic Policy

Objectives of Macroeconomic Policy

The Formulation of Macroeconomic Policy

Summary

Review Questions

25 Monetary Policy and Fiscal Policy

Introduction

Meaning of Monetary Policy

Instruments of Monetary Policy

Monetary Policy Developments in India

Limitations of Monetary Policy

Meaning of Fiscal Policy

Instruments of Fiscal Policy

Fiscal Policy and Stabilization in the Economy

Full Employment Budget Surplus

Limitations of Fiscal Policy

Crowding Out and its Importance

Summary

Review Questions

Appendix A

Appendix B

Appendix C

Glossary