Macroeconomics and Public
Policy Analysis
Dr. Remya Tressa Jacob
Faculty details
• Dr. Remya Tressa Jacob
• Visiting lecturer
• Email: [email protected]
• Website: https://sites.google.com/view/remyatressajacob/home
• Academic background and training
❖PhD, Economics area, IIM Kozhikode
❖Commonwealth Scholar, University of Essex, UK
❖Postdoctoral researcher, University of St. Gallen, Switzerland
Resources
• Text book: Macro ECON: A South-Asian Perspective by William A.
McEachern & A. Indira, Cengage Learning,2018.
• Also read
Economic Times, Business Standard, Business Line or The Hindu.
• Use Marginal Revolution University website: mru.org
Teaching Philosophy
• Class time will be a mixture of lecture and active learning.
Active learning will be used to involve you in an active
discussion of the macroeconomic principles and ideas.
• Before each session, the students are expected to read the
materials for class discussion.
• Quizzes could be surprise/ planned.
• Class participation would involve replying to the queries
raised by the faculty and taking part in the group discussions.
• Please do make it a point to attend all the sessions so that
you don’t miss the points for quizzes & class participation
(30%).
• Be on time for the class! No late entry will be permitted.
Evaluation
• Mid-term examination : 30%
• End-term examination : 30%
• Quizzes : 15%
• Project Report and Presentation : 10%
• Class participation : 15%
What is Economics ?
Let me hear from you…
Can we create something interesting?
Are we
somewhere
near???
Or even
better???
Give your rating!
Definition
• “the science which studies human behavior as a relationship between
ends and scarce means which have alternative uses” -Lionel Robbins
(1932)
• The most important difference between economics and other sciences,
➔ the systems it examines are fluid!
HH Wants Choice Firms
Unlimited Resources
Limited
Opportunity Cost
Knowledge of Economics, helps to allocate scarce
resources most efficiently to minimize the cost!
Why Macro for Business
Managers?
Macro environment
• Macro environment includes the factors which are
external to the firm.
• Cannot be controlled by the organisation.
• Not specific to any industry but influences all the
firms but the influence may be at different levels.
• One must adjust to the decisions as per the changes
in the environment.
Value additions from learning Macroeconomics
• To understand the logic of policies implemented by
the govt or the central bank.
• To analyze policy alternatives.
• To understand the implications of policies.
• To understand the world around you.
• To assess the opportunity within and outside the
country.
Some
stories!!!
Economic systems: The story of evolution!
• Like civilizations evolved in the ancient • People began to trade, first by bartering
world, systems for providing goods and • Later with coins of precious metal
services also evolved.
• Then, trade became a central part of life.
• “The business of buying and selling
goods operated for centuries before it
occurred to anyone to examine how the
• Early economic systems emerged naturally system worked”
as various trades and crafts produced goods
that could be exchanged.
Economics: The story of evolution
• Modern economics emerged as a distinct discipline in the 18th century
• 1776 -The Wealth of Nations, by Scottish thinker Adam Smith
• What prompted interest in the subject: advent of the Industrial Revolution➔
enormous changes in the economy.
• Previous thinkers commented on the management of goods and services within
societies, treating questions that arose as problems for moral or political
philosophy.
• But with the arrival of factories and mass producers of goods came a new era of
economic organization that looked at the bigger picture.
• This was the beginning of the so-called market economy.
Macroeconomics: The story of evolution
• Smith’s analysis of the new system set the standard with a comprehensive
explanation of the competitive market.
• Market is guided by an “invisible hand”
• How? Rational actions of self-interested individuals ultimately give the wider
society exactly what it needs.
• After Smith: a new breed of economic thinkers emerged who chose to
concentrate entirely on the economy.
• Each of these built upon our understanding of the economy➔laid the
foundations for the various branches of economics.
• One approach was to look at the economy as a whole, either at a national or
international level, which became known as “macroeconomics.”
Micro Vs Macro
Most Relevant Micro
Micro Vs Macro Concepts
Demand; Supply; Shift in
the curve and
movement along the
Decision making curve
of individuals Time periods;
(family) Endogenous and
• Micro exogenous variables
Decision making
of Business
(firms)
•Economy as a whole
•It is about what people care about the most
- Employment
• Macro - Inflation
- Interest rates
- Fiscal position
- currency value etc.
What are the main issues/problems
of a firm and an economy?
Economy’s Perspective Firm’s Perspective
• What to produce? • The product decision.
(allocation of resources)
• How to produce? • The hiring, staffing,
(selection of technology) procurement, and capital
budgeting decisions.
• For whom to produce?
• The market segmentation
(distribution of output) decision.
• There are essentially three ways a country can
answer these questions.
• This has led to the emergency of different types of
economy.
Types of Economy
• Economy classification is based on the systems by
which nations allocate their resources to solve the
problems of an economy.
• Command Economy (central planning) (Eg. North
Korea , Cuba)
- It has strong government control.
-government decide how the country's
resources would best allocated.
• Market Economy (Capitalism) (Eg. US, Canada)
- Very little government control (regulation).
- “Invisible hand", determines how resources
should be allocated.
- Prices are set by market mechanism.
- Consumer sovereignty reigns.
Laissez-faire: No state intervention on economic issues,
which implies free markets, private ownership of
property, and minimal taxes. Government to provide
protection from coercion and theft and maintaining
peace, and property rights.
• Mixed Economy: Both Capitalism and Socialism. An
economy that contains both privately and state owned
enterprises and the price system is not entirely free but
under some government control.
• Example: India
Team role play: 7 teams
• 3 teams –for each type of economy (3 minutes each)
• 3 teams –against each type of economy (3 minutes each)
• 1 team – Moderator
How to assess an economy’s
performance?
How to assess an economy’s performance?
• Perhaps the three most important indicators of
the macroeconomic performance of an economy
are:
- output [real gross domestic product (GDP)],
- the inflation rate, and
- the unemployment rate.
• Good performance means
- low unemployment rate
- low inflation
-rapid productivity growth.
Exercise: Current macroeconomic status of Indian
Economy
• GDP growth rate (2022-23) -?
• Inflation (2022) - ?
• Unemployment rate(September 2022) - ?
• Fiscal deficit (2021-22) (% of GDP) -?
• Current account deficit (2021-22) -?
Possible Sources: Economic Survey, PIB, Newspaper
reports, CMIE website
Exercise: Current macroeconomic status of Indian
Economy
• GDP growth rate (2021-22) - 9.2%
• Inflation (2021-22) - 5.2%
• Unemployment rate (October 2022) - 6.4%
• Fiscal deficit (2021-22) (% of GDP) - 6.7%
• Current account deficit (Q1 of FY 2022-23) (% of GDP)
- 2.8%
Sources: Economic Survey, PIB, Newspaper reports,
CMIE website
Sources for reference
• GDP & Inflation:
https://pib.gov.in/PressReleasePage.aspx?PRID=1793829
• Unemployment rate: https://unemploymentinindia.cmie.com/
• Fiscal deficit:
https://economictimes.indiatimes.com/news/economy/indicators/fy2
2-fiscal-deficit-at-6-7-vs-revised-estimate-of-6-
9/articleshow/91915477.cms?from=mdr
• Current account deficit:
https://timesofindia.indiatimes.com/business/india-business/current-
account-deficit-widens-to-2-8-of-gdp-in-q1-of-fy23-
rbi/articleshow/94536230.cms
Economic Fluctuations and Growth
◆ Business cycle -Rise and fall of economic
activity relative to the long-term growth trend of
the economy.
◆ Expansions: Output increases
◆ Contractions: Output decreases
◆ Depression
◆ Sharp reduction in output
◆ Lasts > 1 year
◆ High unemployment
◆ Recession
◆ Lasts > 6 months
Hypothetical Business Cycles
Economic Indicators
◆ Leading economic indicators
◆ Predict a change in economy
◆ Recovery
◆ Downturn
◆ Coincident economic indicators
◆ Reflect changes as they occur
◆ Lagging economic indicators
◆ Follow changes in economy
Can I get some examples?
Examples
◆ Leading economic indicators
◆ Stock market
◆ Bond yields etc
◆ Coincident economic indicators
◆ GDP
◆ Personal income
◆ Lagging economic indicators
◆ Income and Wages
◆ Unemployment Rate
◆ Consumer Price Index
(Inflation)
◆ Currency Strength
◆ Interest Rates
◆ Corporate Profits
◆ Balance of Trade etc
What are the
Macroeconomic objectives
of a nation?
Short run Macroeconomic Goals
(i) Price Stability (control of inflation); Inflation rate:
how fast prices are rising over time.
(ii) Reduction in unemployment; proportion of
workers who are not employed; and
(iii) Stable output growth (avoidance of short run
fluctuations that constitutes business cycle).
(iv) Avoiding BOP and exchange rate problem
• Increasing output, employment and growth, while
keeping inflation controlled is a major issue.
What are the tools used to
achieve these objectives?
Instruments
• There are three types of policies the government employs to
achieve these goals:
1. Fiscal policy: government policies concerning taxes and
spending.
2. Monetary policy: tools used by the RBI to control the
quantity of money in the economy.
3. Growth or supply-side policies: stimulating aggregate
supply instead of aggregate demand. Promoting long-run
economic growth by stimulating R&D, technological
innovations, and other measures designed to increase
productivity.
What are the major
macroeconomic issues or
problems of Indian economy?
Current Macroeconomic Issues of Indian Economy
• Low investment rate
• Low savings rate
• High unemployment rate
• High fiscal deficit
Group exercise for tomorrow!
• Bring a newspaper article relevant to macroeconomics from last one
week including today and do a two minute presentation!
• Group’s mark included in your assessment!
• I look forward to hear from you tomorrow!
