Macro economics


The purpose of this course is to provide students an introduction to macroeconomic theory and issues with a proper understanding of core concepts and methods of macroeconomics as a foundation for subsequent study of macroeconomic topics and as one of the key elements in the professional training.  Macroeconomics deals with broad economic aggregates such as national income, the overall level of prices, unemployment and the money supply. The major areas of focus will be measurement of gross national product, consumption function, saving, investment, the fundamentals of international trade; the causes and effects of trade and budget deficits, the inputs market, goods market, money market, and economic growth.  Business cycles will also be discussed. After defining key variables such as output, prices, inflation, unemployment, and exchange rate etc., we will develop various theoretical frameworks to formalize the relationships between these variables.  The basic IS-LM as well as AD-AS models and their equilibrium will be covered with some basic applications.


By the end of the course, students will possess a clear understanding of how the macroeconomic theory explains the situation of an economy. Upon completion of the course it is expected that students should be able to:

  • understand the basic structure of the economy and theories of macroeconomics at a level appropriate for a first year business studies graduate
  • understand the macroeconomic models underlying the goods, input and money market, as well as the basic IS-LM and also AD-AS framework
  • understand the forces determining macroeconomic variables such as inflation, unemployment, interest rates, and the exchange rate
  • understand basic macroeconomic models as given by Classical, Keynesian, and Modernists
  • appreciate the role of monetary and fiscal policies in solving macroeconomic problems

Prerequisite(s): None

Recommended Text Books:

S.No. Title Author(s) Assigned Code
1 Economics, 17th  Edition, McGraw Hill/Irwin Publishing McConnel, Campbell and Stanley Brue Book 1
2 Macroeconomics, 4th Edition 2000, Worth Publishers, New York. Mankiw, N. Gregory Book 2 


Ch 1 (Book 2)  

The Science of Macroeconomics

What macroeconomists study, how economists think (theory as model building, flexible versus sticky prices, microeconomic thinking and macroeconomic models
Ch 2 (Book 2)  


The Data of Macroeconomics


Measuring the value of economic activity (GDP & its other measures), measuring the cost of living (CPI, GDP deflator), measuring joblessness (Unemployment rate, Okun’s law), from economic statistics to economic models
Ch 8 (Book1)  

Introduction to Economic Growth and Instability


Economic growth (Goal, arithmetic, main sources), Business cycle (phases, causation, cyclical impact), Unemployment (measurement, types, meaning of full employment, costs of unemployment), Inflation (meaning, measurement, facts, types, effects)


Ch 9 (Book1) Basic Macroeconomic Relationships The Income-Consumption and Income-Saving Relationships, The Real Interest-Rate-Investment relationship, The Multiplier effect
Ch 10 (Book1)  


The Aggregate Expenditure Model


Consumption and Investment Schedules, Aggregate Expenditure Model in closed economy, Equilibrium GDP, Changes in Equilibrium GDP and the Multiplier, Aggregate expenditure model in open economy, Equilibrium versus Full-Employment GDP, Limitations of the Model
Ch 11 (Book1) Aggregate Demand and Aggregate Supply


Aggregate Demand Curve, determinants of Aggregate Demand, Aggregate Supply in the Long Run, Aggregate Supply in the Short Run, determinants of Aggregate Supply, IS-LM and AD-AS Framework
Ch 12 (Book1)  

Fiscal Policy


Meaning, Expansionary Fiscal Policy, Contractionary  Fiscal Policy, Financing of deficits, Built –In Stability, Evaluation, Problems, Criticisms and Complications
Ch 18 (Book 2) Money Supply and Money Demand


Functions of money, money definition, 100-percent & fractional-reserve banking, a model of the money supply, portfolio theories of money demand, transactions theories of money demand
Ch 15 (Book1) Monetary Policy


Meaning, Tools, Monetary Policy, Real GDP and the Price Level


Please note: This is a proposed schedule only and may be varied at the discretion of the instructor to give a greater or lesser degree of emphasis to particular topics.

Recommended Practical Topics

1 , “Balance of Payments: Accounting and Presentation”, Harvard Business School. Yoffie, David B. and Jane K. Austin (1983)
2 Pakistan Economic Survey, Ministry of Finance, Economic Advisor’s Wing, Islamabad Government of Pakistan (2007)
3 State Bank Annual Report, State Bank of Pakistan, Karachi. Government of Pakistan (2007)
4 Internet Resources:

1. (Government of Pakistan)

2. (Finance Division)

3. (Planning and Development Division)

4. (State Bank of Pakistan)

5. (Pakistan Institute of Development Economics)