Macroeconomics Simplified explains the intuition behind Keynesian and neoclassical macroeconomics using graphs and simple algebra. It provides students with a strong conceptual basis for understanding the tension between Keynesian and neoclassical systems that has once again came to the forefront since the 2007-08 financial crisis. The book shows how theoretical perspectives affect macroeconomic policy choices and proposes a pragmatic approach to policy that is sensitive to prevailing economic conditions. Students of economics and business alike will enjoy its concise and engaging analysis and find the applications and references to the Indian economy helpful.
List Of Tables xi
List Of Figures xiii
Acknowledgements xvii
1 Introduction 1 (4)
Technical and Ideological Issues 3 (2)
2 The National Accounts 5 (14)
National Income Accounting Concepts 5 (2)
Expenditure on the GDP 7 (3)
Other Macroeconomic Aggregates 10 (1)
The GNP at Market Prices 11 (1)
A Few Identities 11 (1)
Real and Nominal GDP 12 (1)
The GDP, Economic Development and Welfare 13 (2)
The GNP and Welfare 15 (3)
Review Questions and Answers 18 (1)
3 The Neoclassical Macro Model 19 (21)
The Classical Dichotomy and the 20 (1)
Homogeneity Postulate
The Determination of Employment and Output 21 (5)
The production function 21 (1)
The demand for labour function 22 (2)
The supply of labour function 24 (1)
Equilibrium in the labour market 25 (1)
The Determination of Output and Employment 26 (8)
The aggregate supply (AS) function 26 (5)
Say's law 31 (3)
The Quantity Theory of Money 34 (2)
New Classical Stories about the Business 36 (2)
Cycle
Review Questions and Answers 38 (2)
4 The Simple Keynesian Model 40 (23)
The General Theory 41 (3)
The Principle of Effective Demand and 44 (4)
Keynes's Economics
Quantity Adjustment 48 (1)
The 'Keynesian Cross' Model of Income 49 (9)
Determination
New Keynesian Microfoundations 58 (2)
The Relevance of Keynesian Economics Today 60 (2)
Review Questions and Answers 62 (1)
5 Investment and Interest Rates 63 (16)
Interest Rates and Investment 63 (2)
Bond Prices and Yields: Some Basics 65 (1)
The Relationship between Investment and 66 (4)
the Interest Rate
Inflation and Interest Rates 70 (1)
The Structure of Interest Rates 71 (1)
The Term Structure of Interest Rates 72 (1)
The Expectations Theory of the Yield Curve 72 (4)
Inflation-indexed Bonds in India 76 (1)
Review Questions and Answers 77 (2)
6 The IS-LM Model 79 (39)
The Role of Investment 80 (1)
The IS Curve with No Government Sector 81 (11)
Equilibrium in the goods market: The IS 81 (1)
curve
Planned investment and savings 82 (1)
Deriving the IS curve 83 (3)
Deriving the simple IS curve 86 (2)
geometrically
Shifts of the simple IS curve 88 (2)
The IS curve including government 90 (2)
The Balanced Budget Multiplier 92 (1)
Deriving the IS Curve (Including 93 (4)
Government) Geometrically
Shifts in the IS curve 95 (1)
Positions on and off the IS curve 95 (2)
Movements along the IS curve 97 (1)
The Financial Sector (The LM Curve) 97 (11)
Demand for money in the IS-LM model 98 (3)
Money market equilibrium 101 (1)
Deriving the LM curve 101 (1)
Deriving the LM curve geometrically 102 (1)
Points on and off the LM curve 103 (3)
Movements along the LM curve 106 (1)
Shifts of the LM curve 106 (2)
Equilibrium in the Goods and Money Market 108 (3)
Comparing the Keynesian Cross and the 111 (2)
IS-LM Models
Review Questions and Answers 113 (5)
7 Fiscal and Monetary Policies in the IS-LM 118 (22)
Model
Fiscal and Monetary Policies in a 120 (5)
Keynesian Framework
Fiscal policy 120 (1)
Monetary policy 121 (1)
Dynamic adjustment and economic policy 122 (3)
Fiscal and Monetary Policies in a 125 (4)
Neoclassical Framework
Fiscal policy 127 (2)
Monetary Policy 129 (2)
A Pragmatic Approach to IS-LM 131 (2)
Distribution and Demand 133 (2)
Investment and Economic Policy 135 (4)
Review Questions and Answers 139 (1)
8 The Aggregate Supply and Demand Model 140 (28)
The AS Curve 141 (4)
The neoclassical AS curve 141 (1)
Deriving the AS curve with money wages 142 (3)
rigid downwards: The 'Keynesian version
The Aggregate Demand (AD) Curve 145 (3)
Shifting the AD curve 146 (2)
Equilibrium in the Keynesian AS-AD Model 148 (4)
The dampening effect of prices on the 149 (1)
multiplier
Interpreting the Keynesian less than 150 (2)
full-employment equilibrium
Equilibrium in the Neoclassical AS-AD 152 (1)
Model
Comparing the One-sector, Two-sector and 153 (2)
Three-sector Keynesian Models
Short-term and Long-term Growth 155 (1)
The Phillips Curve and Unemployment 156 (1)
The Phillips curve 156 (1)
The Relationship between Wage Growth and 157 (1)
the Rate of Unemployment in a Closed
Economy
A Dynamic Keynesian Model Assuming Naive 158 (3)
Expectations
Adaptive Expectations and the Long-run 161 (1)
Vertical Phillips Curve
Rational Expectations 162 (1)
The NAIRU 163 (1)
The 'Low Road/High Road' Counter Narrative 164 (2)
Review Questions and Answers 166 (2)
9 Introducing the Open Economy 168 (25)
Exchange Rate Determination and Balance 168 (2)
of Payments Concepts
Nominal Exchange Rate Determination 170 (4)
Fixed exchange rates 171 (3)
The Open-economy One-sector Keynesian 174 (2)
Model
The Open-economy Keynesian IS-LM-BP Model 176 (6)
The open economy IS curve 177 (1)
The open economy LM curve 178 (1)
The BP line 179 (3)
Economic Policy under Fixed Exchange Rates 182 (1)
Economic Policy under Flexible Exchange 183 (1)
Rates
The Real Exchange Rate 184 (1)
The Theory of Purchasing Power Parity 185 (2)
(PPP)
Policy Implications 187 (1)
More on Interest Rates and the Exchange 188 (1)
Rate
Expected Inflation and the Exchange Rate 189
India and the 2008 Financial Crisis 190 (3)
10 Credit and Crisis: An Epilogue 193 (6)
Joseph Schumpeter 194 (1)
Hyman Minsky 195 (2)
Capitalism and Society 197 (2)
Index 199 (5)
About the Authors 204
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