PAPER – II MACROECONOMICS Total Marks: 100
1. What is Macroeconomics?:
Major macroeconomic issues. Economic models. Stocks and flows, National income accounting, circular flow of income, real versus nominal GDP, the GDP deflator, the consumer price index, economic growth, actual versus potential output, business cycles and their phases, definition of full employment, unemployment, GDP gap, Inflation.
2. Classical Macroeconomics:
The classical revolution, production, employment, labour demand and labour supply. Equilibrium output and employment. The quantity theory of money. The Cambridge approach to the Quantity theory. Aggregate Demand and Aggregate Supply in the classical system. The classical theory of rate of interest. Complete classical model and classical dichotomy.
3. The Keynesian Macroeconomics:
Aggregate expenditure and its components. Consumption function and Savings function. Investment and the real rate of interest. The equilibrium GDP in a closed economy simple multiplies. Government spending and taxes. Tax multiplier. GDP in an open economy. The net export function and the foreign trade multiplier. The augmented saving-investment approach. Fiscal and monetary policies.
4. Investment and its determinants:
Marginal efficiency of capital and optimal capital stock, the marginal efficiency of investment. The stock market and Tobin’s qtheory. Inventory investment and the accelerator model. The interaction of multiplier and accelerator. The derivation of IS- curve and its slope. Factors that shift the IS- curve.
5. The money market and LM-curve.
Keynes Theory of Liquidity preference. Supply of money. Monetary equilibrium and the rate of interest. Derivation of LM-curve and its slope. Factors that shift the LM-curve. Keynes liquidity tap. Interaction of IS-LM curves. Adjustment to equilibrium in the IS-LM curve model. The algebra of the IS-LM model.
6. Aggregate Demand and Aggregate Supply:
Macroeconomic equilibrium in the short run. The effect of aggregate demand and aggregate supply shocks on the price level and GDP. Long run consequences of aggregate demand shocks. Long run aggregate supply curve. Inflationary and recessionary gaps. The theory of fiscal stabilization and its effectiveness. Transmission mechanism. Comparison of the Classical and Keynesian models and policy conclusions.
7. Inflation and unemployment:
Types of inflation, Supply shock and demand Shock. Inflation as a monetary phenomena. Stagflation. The theory of Philip’s Curve. The short run and the long run Philips curve. The expectations augmented Philip’s curve. Adaptive expectations. Unemployment. Frictional, structural and cyclical unemployment. Okun’s law. Hysteresis and the natural rate hypotheses.
8. Consumption theories and their implications:
Keynesian absolute income hypothesis, Simon Kuznets findings, Duesenbury’s hypothesis, Permanent income hypothesis, life cycle hypothesis, Robert Hall and the Random- walk hypothesis.
1. Lipsey & Chrystal, Economics, Oxford University Press.
2. Mankiw, G.N., Macroeconomics, Worth Publishers, New York.
3. Froyen, R.T., Macroeconomics, Theories and Policies, Pearson education.
4. Glahe, F.R., Macroeconomics, Theory and Policy, Harcourt Brace Jovanovich Inc.
PART II ECONOMICS OF PAKISTAN
1. Economic Development
Economic Development versus Economic Growth. Measurement of economic development. Characteristics of a developing economy. Obstacles to economic development. Determinants or Pre-requisites of economic development. The state of Pakistan’s economy and its comparison with other economies of the world.
2. Strategic Sectors.
Importance and problems of the agricultural, industrial and foreign trade sectors of the economy. WTO and its implications. Foreign direct investment, foreign debt burden and debt servicing problems of Pakistan.
3. Monetary and Fiscal policies.
The role of monetary and fiscal policies in promoting economic growth and tackling the problems of inflation and unemployment in Pakistan. Deficit financing and the annual budget.
1. Nasir, M.S. and Kamal S. Hyder, Economy of Pakistan.
2. Zaidi, S. Akbar, Issues of Pakistan’s Economy. Oxford Univ. Press.
3. Pakistan Economic Survey, Published by the Government of Pakistan.
4. Todaro. M.P., Economic Development in the third world. Latest edition. Heinemann. London.