Table of Contents

**Introductory Macroeconomics Syllabus | ECO 201 | BBA Third Semester Syllabus | Pokhara University**

**Course Objectives**

This course is designed to reinforce and expand students’ understanding of the basic macroeconomic theory. It aims to provide students with an introductory-level treatment of economic theory with emphasis on the technique beside the results. Besides, it helps the students to master the basic macroeconomic tools used by the prominent economists in practice, and makes them able to apply these tools in a variety of contexts to set up and solve macroeconomic problems.

**Course Description**

The first two units of this course examine the two fundamental macroeconomic topics, viz. national income & employment. Then the course focuses on various macroeconomic theories, viz. consumption, saving and investment functions and macroeconomic equilibrium as well as macroeconomic issues and policies viz. inflation, trade cycle and fiscal monetary policies. The major concentrations of this course are: national income and employment, consumption, saving and investment, aggregate demand and aggregate supply, determinations of macroeconomic and general equilibrium of an economy.

### Course Outcomes

By the end of this course, students should be able to:

- explain basic macroeconomic terminology (as e.g. national income, aggregate demand, aggregate supply, trade cycle, inflation etc.) in a comprehensive and intuitive way;
- describe and justify the main assumptions behind simple macroeconomic models as e.g. the aggregate demand and aggregate supply model, saving investment equality model, etc;
- illustrate diagrammatically these models and perform policy experiments;
- derive numerically macroeconomic instruments and learn how to use them in practice (e.g. national income, multiplier, inflation etc.);
- solve algebraically simple macroeconomic models in order to determine the equilibrium economic variables, and reflect on the solutions with a critical mind;
- use economic intuition to explain topical policy issues (e.g. fiscal policy, monetary policy and fiscal-monetary mix).

**Course Contents**

**Unit I: Nature and Scope of Macroeconomics ( 4 hours)**

Meaning and Concept of macroeconomics; Basic issues in macroeconomics: unemployment, inflation, business cycles, and economic growth; Scope and importance of macroeconomics; Distinction and interdependence between microeconomics and macroeconomics.

**Unit II: National Income: Concept and Measurement (10 hours)**

Circular Flow of Income and Expenditure: two, three and four sector economy, Meaning, definitions and various concept of National income, Methods of computing/measuring National income, Difficulties in the measurement of National income, Importance of National income analysis.

**Unit III: Theories of Employment(5 hours)**

Classical theory of employment and output, Summary of the classical model (including Say’s law and Quantity theory of money), Principle of Effective Demand: Aggregate demand price, Aggregate supply price, Determination of effective demand, Importance of effective demand, Repudiation of Say’s law and Full Employment Theory.

**Unit IV: Consumption Function, Saving Function and Investment Functions (7 hours)**

Meaning of consumption function, Keynes’s psychological law of consumption, Concept of MPC and APC, Determinants of the consumption function, Measures to raise the propensity to consume, Saving function, Meaning of capital and investment, Types of investment, Determinants of investment, Marginal Efficiency of Capital (MEC), Marginal Efficiency of Investment (MEI); Relation between MEC and the MEI.

**Unit V: Macro-Economic Equilibrium ( 12 hours)**

Meaning and concepts goods market, Determination of equilibrium level of income in two-, three- and four- sector economy (Goods market equilibrium) with aggregate expenditure and aggregate output, Equilibrium with saving and investment, Concept of multiplier, Determination of multiplier in two-, three- and four-sector economy, Leakages of multiplier, Importance of multiplier. IS and LM Function: General Equilibrium of Product and Money Markets, The product (goods) market, Deriving the IS Curve, The money market, Deriving the LM Curve, Shift in the IS and LM functions, Changes in general equilibrium, Simultaneous shift in the IS and LM function, Derivation of aggregate demand curve (AD), Derivation of aggregate supply curve (AS), Equilibrium with AD-AS, change in macroeconomic equilibrium with shift in AD and AS.

**Unit VI: Macro-Economic Phenomenon and Policies (10 hours)**

Inflation: Meaning and measures of inflation, inflationary gap, Causes of inflation, Effects of Inflation, The Phillips curve: The short-run relationship between unemployment and inflation, Business Cycles: Meaning of business cycles (economic fluctuations), Phases of a typical business cycle: Recovery; prosperity; recession, and depression, Counter cyclical measures, Fiscal and Monetary Policies: Objectives, tools and policy measures in developing countries.

** Basic Texts**

Mankiw, N. G. *Macroeconomics.* Dryden Press, Harcourt Brace College Publishers. (Indian Edition)

Samuelson, P. A. *Macroeconomics*. New Delhi: Tata McGraw Hill.

**References**

Donbush, R., Fisher, S. & Startz, R. *Macroeconomics*, New Delhi: Tata McGraw Hill.

Salvatore, D. *Macroeconomics*. New Delhi: Oxford University Press.

Jhingan, M. L. *Macroeconomics. *New Delhi: Vrinda Publications*.*

Dwivedi, D. N. *Macroeconomics: Theory and Policy* . New Delhi: Tata McGraw Hill

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