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    Macro Economics - Session1

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    Haardik Gandhi
    This document discusses macroeconomics and how fiscal and monetary policies of countries can impact businesses. It provides examples of government interventions in Mexico, Sri Lanka, and other countries that had unintended consequences and explains how economic issues in the EU could reduce demand for Indian exports. Key macroeconomic concepts are also outlined such as GDP, inflation, unemployment, growth, and the effects of policies during economic booms and recessions.

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    Macro Economics - Session1

    Uploaded by

    Haardik Gandhi
    39 views11 pages
    This document discusses macroeconomics and how fiscal and monetary policies of countries can impact businesses. It provides examples of government interventions in Mexico, Sri Lanka, and other countries that had unintended consequences and explains how economic issues in the EU could reduce demand for Indian exports. Key macroeconomic concepts are also outlined such as GDP, inflation, unemployment, growth, and the effects of policies during economic booms and recessions.

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    complete macro economics introduction

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    Macro Economics_Session1

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    This document discusses macroeconomics and how fiscal and monetary policies of countries can impact businesses. It provides examples of government interventions in Mexico, Sri Lanka, and other countries that had unintended consequences and explains how economic issues in the EU could reduce demand for Indian exports. Key macroeconomic concepts are also outlined such as GDP, inflation, unemployment, growth, and the effects of policies during economic booms and recessions.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    39 views11 pages

    Macro Economics - Session1

    Uploaded by

    Haardik Gandhi
    This document discusses macroeconomics and how fiscal and monetary policies of countries can impact businesses. It provides examples of government interventions in Mexico, Sri Lanka, and other countries that had unintended consequences and explains how economic issues in the EU could reduce demand for Indian exports. Key macroeconomic concepts are also outlined such as GDP, inflation, unemployment, growth, and the effects of policies during economic booms and recessions.

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    You are on page 1of 11

    Macro Economics

    Dr. Vijay Victor


    What this course intends to deliver?
    • How do countries (policy-makers) make decisions? Does it impact businesses
    in any way?
    Example - Cobra effect
    • Mexico – Car rationing scheme. The city’s government prohibited 20 percent of
    the vehicles from plying on the roads between Monday and Friday based on the
    last digit of their license plates.
    • To bypass the restriction, people bought more cars, many of which were highly
    polluting used cars. The air quality and traffic congestion worsened. Three years
    later, the UN declared Mexico City the most polluted city on the planet.
    • When Sri Lanka's foreign currency shortages became a serious problem in early
    2021, the government tried to limit them by banning imports of chemical
    fertiliser.
    • This led to widespread crop failure. Sri Lanka had to supplement its food stocks
    from abroad, which made its foreign currency shortage even worse.
    • How do different countries manage their fiscal and monetary policies?
    Fiscal and monetary policies have far reaching impact on the long term growth
    prospects.

    • European Debt Crisis


    • Some of the contributing causes
    included the financial crisis of 2007 to
    2008, the Great Recession of 2008 to
    2012, the real estate market crisis, and
    property bubbles in several countries.
    The peripheral states’ fiscal policies
    regarding government expenses and
    revenues also contributed.
    Common monetary policy and different fiscal policy
    • Uniform Rates: A single interest rate set by the European Central Bank
    (ECB) affects borrowing costs for businesses across the Eurozone.
    • Mismatch: In economically weaker countries, high interest rates can
    deter investment, while in stronger economies, low rates can lead to
    asset bubbles.
    How does this affect businesses in India?
    • Export Decline: The EU is one of India's largest trading partners.
    Economic instability in the EU could lead to reduced demand for
    Indian goods, affecting export-oriented industries.
    • Exchange Rates: The crisis could lead to currency volatility, affecting
    businesses that deal in multiple currencies.
    • Can government interventions improve business outcomes?
    - Extreme tomato price fluctuations and government interventions
    • Keynesian view
    Active government involvement.
    Markets are not always self-correcting.
    Fiscal and monetary policies.
    • Classical view
    Government intervention often seen as inefficient.
    Free markets provide the best outcomes for businesses.
    Examples: Deregulation, lower taxes.
    • What policies are important during a boom/recession?
    • An expansionary fiscal policy lowers tax rates or increases spending to increase
    aggregate demand and fuel economic growth.
    • A contractionary fiscal policy raises rates or cuts spending to prevent or reduce
    inflation.
    • The Federal Reserve commonly uses three strategies for monetary policy including
    reserve requirements, the discount rate, and open market operations to control the
    impact of business fluctuations.
    Themes in Macro Economics

    Prices Income Inflation

    Unemployment
    Growth

    8
    THE CORE

    National Income Accounting Aggregate Demand Money Market

    • Computation of GDP • Simple Keynesian Model • Demand for money


    • GDP vs other measures • Deriving the AD & IS curve • The LM Curve
    • Problems in measuring GDP • Understanding different • Closing the IS-LM loop
    components of the AD

    Open Economy Aggregate Supply Policies


    Macroeconomics
    • Exchange rate • Price determination • Monetary Policy
    • Balance of Payment • Phillips curve • Fiscal Policy
    • The Aggregate Supply Curve • Policy Mix

    9
    Typical Issues in Macro Economics

    • Should the government raise taxes?


    • Should exchange rates be fixed or flexible?
    • Should interest rates be lowered?
    • How should the government monetize any budget deficit?

    Why should you care about all this?


    • A country’s policy gets affected due to macroeconomic issues
    • In a globalized world, it is important to understand how macroeconomic policies affect the country and
    in turn affect business
    • Growth of other nations might enhance/lower our market share in the economy!
    Assessment Criteria
    • Case Analysis: 10% (After 7th Session)

    • Quiz: 10% (After 12th Session)

    • Midterm: 25%

    • End Term: 45% (After 16th Session)

    • Project: 10% (After 16th Session)

    • Topics will be provided later

    • Group submission

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