CONTENTS
Preface to the Third Edition Preface to the First Edition
PART 1: INTRODUCTION AND MEASUREMENT
1. Introduction: An Overview 3
Economics 4
Microeconomics and Macroeconomics 8
Methodology in Economics 9
Theory of Aggregation 13
Macroeconomic Goals and Instruments 15
Subject Matter of Macroeconomics 19
Indian Economy vis-a-vis the World Economy 19 References 22
Review Questions 22
2. National Income 23
Income Concepts 23
Economic Units and Circular Flow of Income 30
Income Measurements 32
Nominal and Real Income 39
Measured and PPP Income 40
Income and Human Development Index 41
Income and Welfare 41
International Data and Compartaive Analysis 43 References 46
Review Questions 46
3. Inflation, Unemployment and Poverty 50
Inflation 50
Unemployment 62
Poverty 68
Income Inequality 70 References 72
Review Questions 73
4. Money, Fiscal and Foreign Sector Variables 75
Money and Liquidity Magnitudes 75
Interest Rates 79
Fiscal Magnitudes 81
Foreign Sector Magnitudes 84 References 101
Review Questions 101
PART 2: BEHAVIOURAL AND TECHNOLOGICAL FUNCTIONS
5. Consumption Function 107
Components of Consumption 108
Determinants of Consumption 109
Consumption Function 125
Conclusion 125 References 126 Review Questions 127
6. Investment Function 129
Components of Investments 130
Motivation for Investment 131
Investments and Capital 133
Determinants of Investment 134
Investment Function 142
Conclusion 143 References 143 Review Questions 144
7. Government, Foreign Trade and Foreign Exchange Rate Functions 145
Government Sector 145
Net Exports and Globalisation 149 13 Open Economy 150

Net Exports, Income Identity and Saving Investment Gap 151
Determinants of Trade/Exports and Imports 152
Net Export Function 155
Determinants of Capital Flows and the Function 160
Foreign Exchange Rate System 162
Determinants of Foreign Exchange Rate 167
International Financial Institutions 173
Conclusion 174 References 175 Review Questions 176
8. Money Demand and Supply Functions 179
Demand for Money 180
Supply of Money 188
Regulation of Money Supply and Instruments of
Monetary Policy 198
8.4 Conclusion 205 References 205 Review Questions 206
9. Production Function, Factor Market and Aggregate Supply
Function 209
Production Function 212
Demand for Factors of Production 214
Supply of Factors of Production 217
Factor Market Equilibrium 220
Aggregate Supply Function 222
Phillips Curve 233
Phillips Curve vis-a-vis Aggregate Supply Function 238
Price Expectations' Models 239
Conclusion 242 References 242 Review Questions 243
PART 3: ECONOMIC FLUCTUATIONS AND STABILISATION POLICY: MACROECONOMIC MODELS
10. Business Cycles, Stabilisation Policies and Economic Models 247
Business Cycles 247
Stabilisation Policies 254
Macroeconomic Models 267 References 270
Review Questions 270
11. Classical and Keynesian Fixed Price Models 272
Classical Model 272
Keynesian Cross Model 27H
Keynesian IS-LM Model 288
Applications of the Keynesian Model 302
Case Study 303
Conclusion 304 References 304 Review Questions 305
12. Keynesian Fixed Price, Open Economy (Mundell-Fleming) Model 307
Open Economy IS-LM-BP Functions 307
Open Economy IS-LM Model Under Floating Exchange
Rate System 314
Open Economy IS-LM Model under Fixed Exchange Rate System 318
A Comprative Analysis 321
Policy Mechanisms/Channels 321
Conclusion 325 References 326 Review Questions 326
13. Keynesian Flexible Price (AD-AS) Model and Policy Debate 328
Flexible Price IS-LM Functions 329
Flexible Price AD Function 331
Flexible Price AS Function 338
Flexible Price AD-AS Model 339
Supply Shocks and Supply Side Economics 348
Policy Lags and Discretionary versus Rule Based Policy 352
Fiscal Policy vis-a-vis Monetary Policy 355
Conclusion 358 References 358 Review Questions 359
14. New Classical and New Keynesian Models 361
New Classical Model 361
New Keynesian Model 375
Conclusion 381
References 383 Review Questions 384
15. Unemployment and Inflation: Causes, Consequences and Cures 387
Unemployment—Definition 388
Causes of Unemployment 388
Consequences of Unemployment 393
Cures for Unemployment 396
Inflation—Definition 398
Causes of Inflation 399
Consequences of Inflation 404
Cures for Inflation 413
Conclusion 416 References 416 Review Questions 417
PART 4: ECONOMIC GROWTH AND THE STATE OF MACROECONOMICS
16. Economic Growth 423
Determinants of Income and Growth 425
Harrod-Domar Model 427
Solow (Exogenous Growth) Model 428
Golden Rule 438
Limitations of the Solow Model 440
Endogenous (new) Growth Theory 443
Evidences on Sources of Growth 452
Limits to Economic Growth 454
Conclusion 455 References 457 Review Questions 458
17. State of Macroeconomics 459
Measurement of Economic Variables 459
Business Cycles and Stabilisation Policies 461
Economic Growth 465
Conclusion 466
References 468
Review Questions 468
Appendix I: Comprehensive Case Studies 470
A 1.1 Select Countries 470
A 1.2 Select Macroeconomic Variables and Data 479
A 1.3 Comprehensive Case: Japan's Lost Decade and Continuing Struggle 479
A1.4 Commentary on Select Countries from Selected Countries 483
Appendix II: Multiple Choice Questions 485
Appendix III: Fill in the Blanks Questions 513
Answers to Numerical Questions 524
Index 527