the economist

Topics: Money, Monetary policy, Economics Pages: 214 (30047 words) Published: November 26, 2013
1

Introduction to Macroeconomics

20

1.1

From a closed to an open economy

20

1.2

The IS-LM Framework

33

1.3

Aggregate demand and supply

43

2

The Consumption Function

52

2.1

Introduction

52

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Advanced Macroeconomics

Contents

2.2

The Ando-Modigliani Approach: The life cycle hypothesis

55

2.3

The Friedman approach: Permanent income

60

2.4

Friedman’s consumption function: Cyclical movement

64

2.5

The Duesenberry Approach: Relative income

65

2.6

Money: Definition and function

68

3
Aggregate supply, wages, prices and employment

83

3.1

The Philips Curve

83

3.2

The dynamic aggregate supply curve

87

3.3

The production function

87

3.4

The properties of the aggregate supply curve

91

3.5

Inflation expectations and the aggregate supply curve

94

3.6

The aggregate supply curve (ASC)

96

3.7

The modified Philips Curve

99

3.8

The expected augmented Philips Curve

99

3.9Criticism

101

4
The open economy: Macroeconomy

103

4.1Introduction

103

4.2

105

The open economy and the goods market

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Advanced Macroeconomics

Contents

4.3

The Mundell-Fleming model

110

4.4

Competitive depreciation

117

4.5

The role of prices in an open economy

117

4.6

Automatic adjustment

119

4.7

Expenditure switching and expenditure reducing policies

120

4.8Devaluation

120

4.9

The exchange rate and prices

122

4.10

The crawling peg exchange rate

122

4.11

The J curve effect

123

4.12 Monetary Approach to Balance of Payments (MABoP): the IMF approach to The
macroeconomic stabilization

125

4.13

Exchange rate overshooting

132

5

Modern Macroeconomics

145

5.1Introduction

145

5.2

The efficiency wage hypothesis

145

5.3

The government budget constraints and debt dynamics

151

5.4

Rational expectations

157

5.5

The new Keynesian alternative

164

5.6

The Ricardian Equivalence (RE)

165

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Advanced Macroeconomics

Contents

5.7

The search and matching model

169

5.8

Implicit contracts

176

5.9

The insider–outsider model

179

5.10

The real business cycle theory

182

6International adjustments:
Policy implications
6.1

191

References: Subramaniam, S.N. (2004) “Macroeconomics and monetary developments in India” Palak Publications,
2004, Mumbai, India.
Taylor, John B. (1980) “Aggregate dynamics and staggered contracts” The Journal of Political Economy,
Vol
Verma, Radheshyam & Anand Prakash (2011) “Sensitivity of capital flows to interest rate differentials:
An empirical assessment for India” WPS (DEPR): 7/2011, RBI working paper series, May 2011.
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