L T P S J C

ECON1041 THEORIES OF INCOME, OUTPUT AND EMPLOYMENT

3 0 0 0 0 3

Pre-requisite ECON1031

Co-requisite None

Preferable Exposure None

Course Description:
‘Theories of Income, Output and Employment’ explicates the foundational theories of income, output, and employment at the
macro economy level. The course explains basic macroeconomic concepts and principles and enables the students to
appreciate the workings of real and money markets. Further, the course discusses Keynesian theories of aggregate demand
and equilibrium income, in addition to the classical theories of output and employment. Various theories of money and interest
rate are also discussed. The course examines goods and financial market clearing mechanisms through the IS-LM framework,
and applications of fiscal and monetary policies. Finally, the course analyses macroeconomic problems through various theories
of business cycles, inflation, and unemployment.

Course Educational Objectives:

• Equip students with a thorough understanding of the basic concepts and principles of macroeconomics and the national
income accounting
• Provide a comprehensive discernment on the classical theory of output and employment determination, and quantity
theory of money
• Discern the Keynesian theory of output and income determination, and the demand for money
• Enable students to analyse the IS-LM model and effectiveness of monetary and fiscal policies
• Inculcate in students the ability to examine the theories of business cycles, inflation, and unemployment

MODULE 1 BASIC CONCEPTS AND STRUCTURE OF MACROECONOMY 9 Hrs

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1.1 Basic Concepts: National Income, Output, Money, Interest rate, Unemployment, and Inflation, Consumption, Saving,
Investment

Dornbusch, R., Fischer, S., and Startz, R., 2010. National Income Accounting. In: Macroeconomics, 11th Ed., New York:
McGraw-Hill Irwin, pp. 22-50.

Samuelson, P. and Nordhaus, W., 2010. Overview of Macroeconomics. In: Economics, 19th Ed., New Delhi: McGraw Hill
Education (India) Pvt Ltd, pp. 465-485.

Samuelson, P. and Nordhaus, W., 2010. Consumption and Investment. In: Economics, 19th Ed., New Delhi: McGraw Hill
Education (India) Pvt Ltd, pp. 525-549.

1.2National Income Accounting

CSO, 2007. Development of National Accounts Statistics. In: National Accounts Statistics – Sources and Methods, 2007, Central
Statistical Organisation (CSO), Government of India, pp. 1-21.

CSO, 2007. Basic Concepts of National Accounts Aggregates. In: National Accounts Statistics – Sources and Methods, 2007,
Central Statistical Organisation (CSO), Government of India, pp. 22-28.

Rao, VKRV., 1944. National Income of India, The Annals of the American Academy of Political and Social Science, Vol.233, pp.
99-105.

1.3Balance of Payments Accounting

RBI, 2010. Concepts and Definitions. In: Reserve Bank of India – Balance of Payments Manual for India, Reserve Bank of India,
Mumbai, September 2010, pp. 2-12.

RBI, 2010. External Accounts, SNA and their Linkages. In: Reserve Bank of India – Balance of Payments Manual for India,
Reserve Bank of India, Mumbai, September 2010, pp. 13-24.

1.4Circular Flow of Money and Goods

Mankiw, N.G., 2010. The Data of Macroeconomics. In: Macroeconomics, 7th Ed., New York: Worth Publishers, pp. 17-42.

Samuelson, P. and Nordhaus, W., 2010. Measuring Economic Activity. In: Economics, 19th Ed., New Delhi: McGraw Hill
Education (India) Pvt Ltd, pp. 493- 518.

MODULE 2 PRE-CLASSICAL AND CLASSICAL SCHOOLS OF THOUGHT 9 Hrs

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2.1 Mercantilists and Physiocrats: Mercantilism and Bullionism in Perspective

Bougrine, H., and Rochon, L., 2022. The Mercantilists and Physiocrats. In: A Brief History of Economic Thought: From
Mercantilists to the Post-Keynesians, Cheltenham, UK: Edward Elgar, pp. 4-13.

Robert K. S., 1981. The entelechies of mercantilism, Scandinavian Economic History Review, 29:2, pp. 81-96.

2.2 Classical School of Thought: Laissez Faire; Potential output and equilibrium in the long-run; Aggregate supply curve
(classical vs Keynesian)

Froyen, R., 2012. Classical Macroeconomics (I): Output and Employment. In: Macroeconomics: Theories and Policies, 10th
Ed/Global Edition, Delhi: Pearson, pp.50-66.

Dornbusch, R., Fischer, S., and Startz, R., 2010. Aggregate Supply and Demand. In: Macroeconomics, 11th Ed., New York:
McGraw-Hill Irwin, pp. 97-117.

2.3 Neoclassical School of Thought: Classical dichotomy; Real wages and Full employment; Real balance effect (Pigou effect);
Real wage cut

Scarth, W., 2014. Keynes and the Classics. In: Macroeconomics: The Development of Modern Methods for Policy Analysis,
Cheltenham, UK: Edward Elgar, pp. 1-21.

Scarth, W., 2014. The first Neoclassical Synthesis. In: Macroeconomics: The Development of Modern Methods for Policy
Analysis, Cheltenham, UK: Edward Elgar, pp. 22-38.

2.4 Quantity theory of Money: Classical theory of interest rate; Fischer’s theory and Cambridge Approach; Fiscal and monetary
policies in the classical theory

Froyen, R., 2012. Classical Macroeconomics (II): Money, Prices, and Interest. In: Macroeconomics: Theories and Policies, 10th
Ed/Global Edition, Delhi: Pearson, pp.67-82.

Mankiw, N.G., 2010. Money and Inflation. In: Macroeconomics, 7th Ed., New York: Worth Publishers, pp. 86-91.

MODULE 3 KEYNESIAN THEORY 9 Hrs

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3.1Keynesian Theory of Aggregate Demand and Equilibrium Income

Dornbusch, R., Fischer, S., and Startz, R., 2010. Income and Spending. In: Macroeconomics, 11th Ed., New York: McGraw-Hill
Irwin, pp. 194-218.

Scarth, W., 2014. Generalised disequilibrium: money-wage and price rigidity. In: Macroeconomics: The Development of Modern
Methods for Policy Analysis, Cheltenham, UK: Edward Elgar, pp. 13-17.

3.2 Keynesian Depression Prescription: Expansionary and contractionary fiscal policy; Government spending and tax multipliers;
Multipliers

Froyen, R., 2012. The Keynesian System (I): The Role of Aggregate Demand. In: Macroeconomics: Theories and Policies, 10th
Ed/Global Edition, Delhi: Pearson, pp. 83-108.

Dornbusch, R., Fischer, S., and Startz, R., 2010. Monetary and Fiscal Policy. In: Macroeconomics, 11th Ed., New York:
McGraw-Hill Irwin, pp. 248-282.

3.3 Keynesian Theory of Money and Interest Rate

Dornbusch, R., Fischer, S., and Startz, R., 2010. The Demand for Money. In: Macroeconomics, 11th Ed., New York:
McGraw-Hill Irwin, pp. 376-396.

Blanchard, O., 2021. Financial Markets. In: Macroeconomics, 8th Ed/Global Edition, New Delhi: Pearson, pp. 87-106.

MODULE 4 MONETARY AND FISCAL POLICIES 9 Hrs

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4.1 Product Market and the IS Relation: Product market equilibrium and the IS Schedule

Blanchard, O., 2021. Goods and Financial Markets: The IS-LM Model. In: Macroeconomics, 8th Ed/Global Edition, New Delhi:
Pearson, pp. 107-111.

Froyen, R., 2012. The Keynesian System (II): Money, Interest, and Income. In: Macroeconomics: Theories and Policies, 10th
Ed/Global Edition, Delhi: Pearson, pp. 128-138.

4.2 Money Market and the LM Relation: Money market equilibrium and the LM Schedule

Blanchard, O., 2021. Goods and Financial Markets: The IS-LM Model. In: Macroeconomics, 8th Ed/Global Edition, New Delhi:
Pearson, pp. 112-126.

Froyen, R., 2012. The Keynesian System (II): Money, Interest, and Income. In: Macroeconomics: Theories and Policies, 10th
Ed/Global Edition, Delhi: Pearson, pp.119-127.

4.3 IS-LM Model: IS-LM schedules combined; Fiscal policy and shifts in the IS schedule; Monetary policy and shifts in the LM
schedule

Dornbusch, R., Fischer, S., and Startz, R., 2010. Money, Interest, And Income. In: Macroeconomics, 11th Ed., New York:
McGraw-Hill Irwin, pp. 219-247.

Froyen, R., 2012. The Keynesian System (III): Policy Effects in the IS–LM Model. In: Macroeconomics: Theories and Policies,
10th Ed/Global Edition, Delhi: Pearson, pp. 144-165.

4.4 IS-LM and Policy Framework: Monetary-Fiscal policy mix; Combined fiscal and monetary expansion; Combined fiscal
consolidation and monetary expansion.

Dornbusch, R., Fischer, S., and Startz, R., 2010. Monetary and Fiscal Policy. In Macroeconomics, 11th Ed., New York:
McGraw-Hill Irwin, pp. 248-282.

Carlin, W. and Soskice, D., 2008. Fiscal Policy. In: Macroeconomics: Imperfections, Institutions & Policies, New Delhi: Oxford
University Press, pp. 173-202.

MODULE 5 INFLATION AND UNEMPLOYMENT 9 Hrs

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5.1Theories of Inflation

Samuelson, P. and Nordhaus, W., 2010. Inflation. In: Economics, 19th Ed., New Delhi: McGraw Hill Education (India) Pvt Ltd,
pp. 793-819.

Dornbusch, R., Fischer, S., and Startz, R., 2010. Aggregate Supply: Wages, Prices, and Unemployment. In: Macroeconomics,
11th Ed., New York: McGraw-Hill Irwin, pp. 118-144.

5.2Unemployment Theories

Froyen, R., 2012. Output, Inflation, and Unemployment: Alternative Views. In: Macroeconomics: Theories and Policies, 10th
Ed/Global Edition, Delhi: Pearson, pp. 212-227.

Blanchard, O., 2021. The Phillips Curve, the Natural Rate of Unemployment, and Inflation. In: Macroeconomics, 8th Ed/Global
Edition, New Delhi: Pearson, pp. 173- 194.

5.3 Rational Expectations, Price Stickiness, and Real Business Cycles

Froyen, R., 2012. Real Business Cycles and New Keynesian Economics. In: Macroeconomics: Theories and Policies, 10th
Ed/Global Edition, Delhi: Pearson, pp. 246-262.

Dornbusch, R., Fischer, S., and Startz, R., 2010. Advanced Topics. In: Macroeconomics, 11th Ed., New York: McGraw-Hill Irwin,
pp. 557-588.

5.4 Indian Policy Context: Policy Context to control inflation, unemployment and fluctuations in output; RBI policy measures

Basu, K., 2011. Understanding Inflation and Controlling It, Economic & Political Weekly, Vol. 46, Issue No. 41, 08 Oct, 2011.

RBI, 2022. The Economy- Review and Prospects. In: RESERVE BANK OF INDIAANNUAL REPORT 2021-22, pp.1-88.

Texbook(s):
1. Dornbusch, R., Fischer, S., and Startz, R., Macroeconomics, 11, McGraw-Hill Irwin,New York, 2010
2. Samuelson, P. and Nordhaus, W, Economics, 19, McGraw Hill Education (India) Pvt Ltd,New Delhi, 2010

Reference(s):
1. Froyen, R, Macroeconomics: Theories and Policies, 10, Pearson,Delhi, 2012
2. Blanchard, O., Macroeconomics, 8, Pearson,New Delhi, 2021
3. Mankiw, N.G, Macroeconomics, 7, Worth Publishers,New York, 2007
4. Carlin, W. and Soskice, D., Macroeconomics: Imperfections, Institutions & Policies, Oxford University Press,New Delhi,
2008

Course Outcomes:
1. Understand the basic concepts of macroeconomics and the national income accounting
2. Analyse the classical theory of output and employment determination and quantity theory of money
3. Examine the Keynesian theory of output and income determination and the demand for money
4. Evaluate the IS-LM model and effectiveness of monetary and fiscal policies
5. Examine the theories of business cycles, inflation, and unemployment

Course Articulation Matrix:

POs PSOs

CO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 1 2 3 4

1 2 1 2 1 1 3 3 1 1

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 2 2 3 1 3 2

3 2 3 1 3 1 1 2

4 3 2 3 3 2

3 – High, 2 – Medium & 1 – Low Correlation

APPROVED IN MEETINGS HELD ON:

BOS : 30-06-2023 Academic Council Number: 27 Academic Council : 06-07-2023

SDG No(s). & Statement(s) :

8 & Decent Work and Economic Growth : Promote sustained, inclusive and sustainable economic growth, full and productive
employment and decent work for all.
12 & Responsible Consumption and Production : Ensure sustainable consumption and production patterns.

SDG Justification(s):
The modules and topics mentioned in this course are designed to prompt students towards inclusive and sustainable economic
growth. The topics also aim to promote understanding about full and productive employment., The modules and topics
mentioned in this course are designed to prompt students towards achieving sustainable production patterns which will facilitate
sustainable and inclusive economic growth

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