MACROECONOMIC

ENVIRONMENT
PGP, Term II, September - December 2011
LECTURE 1 LECTURE 1
MOTIVATION, CONCEPTS & ISSUES
Prof. D. Tripati Rao
Indian Institute of Management Lucknow
tripatiiiml.ac.in, September 22, 2011
ECONOMICS IS..?
Diane Swank, ~1he Passionate Economist"
NOT
data & charts, numbers and tables
'magic black box doling out reams oI Iorecasting
statistics to move the Iinancial markets
merely moving and counting currency merely moving and counting currency
even a hard science
ABOUT
A BEHAVIOURAL SCIENCE
Built 'on the Ioundations oI HUMAN activity
Finding POWER and HUMANITY behind the numbers
Adds INSIGHTS into what others might see as CHAOS
REALITY & ECONOMIC MODELS
REALITY
UNIVERSAL LAWS
THEORY
MODEL
A
B
S
T
R
A
C
T
I
O
N
Simplification of complex REALITY qualified by relevant assumptions Simplification of complex REALITY qualified by relevant assumptions
Investigate causal relations (Cause Effect)
Historical experience, comparative perspective & analytical construction
Logical & Reasoning space
Conceptual/define issues
Logical deduction
Analytical framework (Mathematical & Statistical Models)
Our Macroeconomics Lectures
What is Output (Income)?
Measurement Issues
Why Output (Income) Fluctuates?
Aggregate Demand Fluctuations
What Causes Output to Fluctuate?
IS-LM Framework IS-LM Framework
How can we Stabilise the Economy?
Monetary & Fiscal Policies
Derivation oI Aggregate Supply Schedule
Phillips Curve: Unemployment-InIlation
What is the Open-Economy Dynamics?
BOP & Exchange Rate Y, i &

Teaching Pedagogy & Objective

Pedagogy
Lecture, case method & conceptual discussion
Stylized model oI working oI a real economy
Discussion Aids
Parables & examples
Indian economic developments (data analysis) Indian economic developments (data analysis)
Developments in the World economy
Objective
For YOU to understand the working oI the
REAL (Indian) ECONOMY
Evaluation
Conceptual, Application & Numerical
Basic Microeconomics Analysis
Opportunity cost
Demand Iunction & demand curve
Income change & price change
income elasticity & price elasticity
You Need to Answer
Production Function
MP
K
& MP
L
short- & long-run
Market & Market Structure
pricing decision in competitive markets
ECONOMICS
Allocation of scarce resources having alternative uses
What to Produce?
Production Decision
How to Produce?
Hiring & Procuring
Wants Resources
Production Decision Hiring & Procuring
Whom to Produce?
Market Segmentation
Price
Market
Demand
What to Produce?
- Rupee Vote
Supply
Price
How to Produce? -
Profit
Wants Resources
Whom to Produce?
- Rupee Vote

Decision Making Units

Households/Individuals
Consumers/Buyers
Business/Firms
Producers/Sellers
Maxising
Consumption
Maximising
Production
Stimulus Response MARKET
Market
Pricing Output
Demand
Understanding
Managerial Decision Making
Supply
Producer Consumer
Demand
Production Cost Choice Preference
Utility
Profit Consumption
Price
Supply
Forms of MARKET
Perfect
Competition
Monopolistic
Competition
Oligopoly
Monopoly
Competition Competition
Oligopoly
Monopoly
IN TERMS OF MARKET POWER
NO ABSOLUTE
Free
Markets
No
Government
Competition
Efficiency
Productivity
LPG
Liberalisation, Privatisation &
Globalisation