Principles Of Macroeconomics

PrefaceSince published my book on 'Macroeconomics: Theory and Policy for postgradu- ate classes, there has been a request from fellow teachers from several Indian Universi- ties to write a book on macroeconomics meant for B.A. and B.Com. (Pass and Honours) classes. Due to growing importance of macroeconomics, a separate paper on macroe- conomics is presently prescribed by the several Indian universities for B.A. and B.Com. classes. We have therefore decided to bring out the present book on 'Principles of Macroe- conomics' for the students of B.A. and B.Com. classes as a companion volume to our book on Principles of Microeconomics'.
Like our book on Principles of Microeconomics, this book on macroeconomics is also mainly based on UGC Model Curriculum. However, several Indian universities in their prescribed syllabi for B.A. and B.Com. have added some topics such as demand and supply of money, theories of money and prices, theories of demand for money and inflation, IS-LM curves model (which integrates money market with goods market), Philips curve concept of trade-off between inflation and unemployment and balance of payments and foreign exchange which are not covered in UGC Model Curriculum. Therefore, to cater to the needs of the students of B.A. and B.Com. classes of these universities we have incorporated the study of these topics as well in this book.
The first six parts of the book form core of macroeconomics and are common in various Indian Universities. In Part-1 of the book, apart from the introductory subjects such as nature and scope of macroeconomics, circular flow of income and expenditure, concepts of national income and their measurement, classical and Keynesian theories of income and employment and their associated topics of consumption function, investment demand and theory of income multiplier have been explained. It is worthwhile to note that in this part we have confined ourselves not only to Keynes's AD-AS model with fixed price level but also newly developed Keynesian AD-AS model with price flexibility.
In Part-II, we have briefly explained the post-Keynesian developments, namely, IS-LM curves model which integrates money market with goods market and Phillips curve concept which is concerned with inflation-unemployment trade-off.
In Part-III we have explained the determination of money supply and theories of demand for money, namely, Keynes's liquidity preference theory, Baumol's inventory approach to transactions demand for money and Friedman's demand for money. Besides, in this Part-III, we have explained the roles of commercial banks and central bank in the determination of money supply. Further, we have briefly discussed the objectives and instruments of monetary policy.
Part-IV of the book is devoted to the explanation of relation between money supply and general price level. In this regard we have critically examined quantity theory of money (both Fishers' transactions and Cambridge cash-balance approaches), Keynes's theory of money and prices and Friedman's restatement of the quantity theory of money. Besides, we have discussed the demand-pull and cost-push theories of inflation and effects of unanticipated inflation on distribution and growth of the economy.
In Part-V, we have not only critically examined in detail the theories of business cycles but also fiscal and monetary policies for controlling business cycles and achieving economic stabilisation. Part-VI of the book deals with the study of open economy macroeconomics in which we have explained the determination of national income in the open economy and foreign trade multiplier. Besides, we have explained the determinants of balance of payments and for