Labour Economy Development

NOTES BY JAYAN JOSE THOMAS

Macroeconomics for Undergraduates

Offered for undergraduate students at the Indian Institute of Technology (IIT) Delhi as Macroeconomics (course codes: HSL 2102 and HUL213), July- December 2026.; Earlier offered at the Indian Institute of Technology (IIT) Delhi Abu Dhabi as AHUL213 (January-May 2026)

Instructor: Dr. Jayan Jose Thomas, Professor of Economics, Humanities and Social Sciences, Indian Institute of Technology Delhi. Office: MS 640B, Main Academic Building, Email: jayan@hss.iitd.ac.in

Brief Outline

This course provides an understanding of the macroeconomics of countries, drawing from Indian and international experiences. It discusses structures of income and wealth and their distributions across social classes. It examines relations between economic variables: between incomes and expenditures, output and prices, investment and savings, wages and employment, and money and interest rates. It studies economic relations between countries and the effects of foreign currency exchanges on the domestic economy. The course also deals with policies, particularly fiscal and monetary policies, and their impacts. The macroeconomic and development challenges facing India and the world will form the backdrop for discussions throughout the course.

A list of topics that will be covered in the course include:

  1. Incomes, wealth, and social classes: Why does the income growth of countries not necessarily lead to improvements in the living standards of their citizens?
  2. A circular flow: production, incomes, expenditures; GDP as value added, as quantities times prices.
  3. What leads, what follows? Wages or profits? Investment or savings? Demand or supply?
  4. The Government enters the scene: what does it do? How does it operate?
  5. Relations with the rest of the world: structure of balance of payments; how are exchange rates determined?
  6. Insight: Does saving flow from poorer to richer countries? Economic relations between China and the US.
  7. Insight: Did savings flow from India to Britain during the colonial period? Indian economy before 1947.
  8. Insight: The role of government in the economy: does public investment boost (‘crowd in’) or hurt (‘crowd out’) private entrepreneurship? Evidence from India and elsewhere; Understanding India’s Union Budget.
  9. Money and banking: how does the central bank determine interest rates and control inflation? 
  10. Structure of wealth; the stock-flow relationship between wealth and incomes; Inequalities in income and wealth.
  11. Understanding the mainstream, neoclassical argument: economic growth will proceed automatically when markets are free. Corollary: If wages are lowered, firms agree to hire more workers.
  12. Keynes (John Maynard, the Great!) disagrees: Low demand leads to unemployment; government expenditures or rising wages can strengthen demand and revive the economy.
  13. Keynes explains: when money becomes a store of value or a speculative asset, some savers may lock their funds in vaults, blocking their flow into investments – leading to demand shortages and economic stagnation.
  14. The IS-LM curve and other analytical tools.
  15. Fiscal and monetary policies.
  16. What if the economy is open for transactions with the outside world? Interest rate parity condition.
  17. Fiscal and monetary policies in an open economy.
  18. What should worry us the most? Fiscal deficit, inflation, or joblessness?
  19. When capital and finance are global: speculative currency attacks, financial crises, and more.
  20. Policies for a more equal world: Social expenditures and public action; with the right policies, achievements in human development do not have to wait until incomes reach a high level.

MAJOR REFERENCES

Taylor, Lance (2004), Reconstructing Macroeconomics, Harvard University Press, Cambridge, Massachusetts.

Blanchard, Oliver (2017), Macroeconomics, 7th Edition, Pearson.

Dornbusch, Rudiger, Stanley Fischer, and Richard Startz (2011), Macroeconomics, 11th Edition, McGraw-Hill, Irwin

Snowdon, Brian and Howard R.Vane (2005), Modern Macroeconomics: Its Origins, Development and Current State, Edward Elgar, Cheltenham, UK.

Bhaduri, Amit (1986), Macroeconomics: The Dynamics of Commodity Production, ME Sharpe.

A note on the references:

It is difficult to suggest a single textbook for this course. The material I cover in the class is derived from several sources. One of the books that has mainly influenced me is Lance Taylor’s Reconstructing Macroeconomics. He presents a ‘heterodox’ version of macroeconomic theory, which tries to understand how inequalities and social structures affect macroeconomic outcomes. Lance Taylor’s work is especially useful in studying developing countries like India. However, the book is advanced and may not be easy to follow for a beginner. In several topics in this course, I shall try to introduce many of the ideas in Lance Taylor’s book in an accessible manner.

The books by Oliver Blanchard and Dornbusch and Fischer are both highly popular and used as standard textbooks for graduate and undergraduate programmes worldwide. The lectures I give in the course incorporate ideas from these books.  

The book by Brian Snowdon and Howard R. Vane is highly useful for understanding the debates between various schools of thought in macroeconomics. We will be covering only a few Chapters of this book.

The book by Amit Bhaduri tries to understand macroeconomic theory in the context of developing countries.

I urge you to review the class discussions/lectures for this course first. Then, you may refer to the notes and other study material I shared. Subsequently, refer to some of the above-referred books for different sections. 

Other References

(These are books and articles that may have contributed to the lectures and course material. You are only required to read them if we ask you to refer to specific pages or sections. However, you are always welcome to go through these works if you are curious and interested. Some of them are classics, especially The General Theory by Keynes. We shall be adding more titles to this list over the semester).

Crotty, James (2019), Keynes against Capitalism: His Economic Case for Liberal Socialism, Routledge, London and New York.

D’Souza, Errol (2008), Macroeconomics, Pearson.

Kalecki, Michael (1971), Selected Essays on the Dynamics of the Capitalist Economy 1933-1970, Cambridge University Press.

Keynes, John Maynard (1936), The General Theory of Employment, Interest and Money

Krugman, Paul, Maurice Obstfeld, and Marc Melitz (2017), International Economics: Theory and Policy, Pearson.

Marglin, Stephen A. (2021), Raising Keynes: A Twenty-First-Century General Theory, Harvard University Press.

Piketty, Thomas (2014), Capital in the Twenty-First Century, Harvard University Press, Cambridge, London.  

Romer, David (2019), Advanced Macroeconomics. McGraw Hill

Taylor, Lance (2010), Maynard’s Revenge: The Collapse of Free Market Macroeconomics, Harvard University Press, Cambridge, Massachusetts.

Evaluation Scheme

Class participation = 6%
Tutorial class presentation (in a group) = 9%
Term paper (in a group) = 10%
Data-based assignment (in a group) = 10%
Minor Exam = 30%
Major Exam = 35%

Attendance Policy

Your participation in classes is critical for the success of this course. Therefore, we urge you to actively participate in all classes by asking questions and participating in discussions.

One of the joys of studying at a university is the sense of community that it provides. You are learning with your batch mates while attending lectures, doing projects, and taking exams. You may be a person who prefers to be on your own, one who likes to read in the corner of the library (I think I still am); you may be able to grasp things quickly by searching on the Internet; you may be shy to talk in a large group, or you feel you are not comfortable speaking in English (that does not matter at all!). None of these should discourage you from coming to the Institute and attending lectures. Your ideas will get sharpened by being part of a larger collective, even when you are not speaking or not necessarily making your presence felt in the class. Over the years, I have noticed several silent yet attentive backbenchers, almost as many as the number of enthusiastic frontbenchers, among the best writers of answers in the courses I have taught here.

Sample Questions, Topics

Minor Exam Question

In 2008, the current account balance as a share of GDP was 9.8% for China and -4.7% for the US. What do these figures tell us about the flow of savings between the two countries and their development strategies? In 2022, the current account balance as a share of the GDP of China fell to 1.4%. Does that tell us anything about China’s changing development priorities?

Major Exam Questions

1. Which of the following can occur when a country committed to a fixed exchange rate receives a large volume of foreign capital flows? (1 mark)

(A) An increase in that country’s high-powered money (or reserve money)

(B)  Outflow of savings from that country to the rest of the world

(C) Both A and B can occur

2.Which of the following can lead to a worsening (or a decline) of net exports (that is, exports minus imports) of a developing country (say India)? (1 mark)

(A) increase in domestic (India’s) incomes,

(B) increase in domestic prices (prices in India)

C) Both A and B

(D) Neither A nor B

3. Why is it argued that expansionary fiscal policy or an increase in government expenditures (that results in a fiscal deficit) can lead to ‘crowding out’ or reduction of private investment? Will you agree with this argument if the economy is demand-constrained? Explain (You may or may not use the IS-LM framework to make your points) (5 marks)

Data Assignment

1. Find out the shares of various sectors in India’s GVA at basic prices (at constant 2011-12 prices):

(a) agriculture and allied activities (including forestry and fishing) (b) Manufacturing (c) Industry (comprises manufacturing, mining and quarrying, and electricity, gas and water supply) (d) construction, and (e) Services (excluding construction) (f) components of services. You may plot the shares for the period from 2011-12 to 2022-23 (or the latest year for which data is available).

Handbook of Statistics on Indian Economy, Reserve Bank of India, Table 3.  Look at the data for the previous years as well)

2. Find out the shares in GDP of: (i) agriculture, forestry, and fishing (ii) manufacturing (iii) services for the following countries: India, the US, and China from World Bank data

https://data.worldbank.org/indicator/NV.AGR.TOTL.ZS)

Comment on India’s GDP structure based on the above observations.

3. What are the major components of India’s balance of payments? Plot and explain how these components have changed over the years. What do you infer about the Indian economy from this plot?

What are the major items in India’s exports and imports? And how have these changed over the years? Comment on the data.

You will have to find the data from these sources:

Handbook of Statistics on Indian Economy, Reserve Bank of India, Tables 120 onwards

Some of the Readings suggested for Class Presentations and Term Papers

Piketty, Thomas (2014), Capital in the Twenty-First Century,

Chapters 2 (Growth: Illusions and Realities), 3(The Metamorphoses of Capital) and 4.

Ha Joon Chang (2007) Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism Chapter 2 “How did Rich Countries Become Rich?”

Habib, Irfan (1975) “Colonization of the Indian Economy: 1757-1900”, Social Scientist, Vol.3, No. 8, pp. 23-53.

Beckert, Sven (2014) Empire of Cotton: A Global History, Chapters 4 and 5.

Paul Krugman The Conscience of a Liberal, Chapters 3 (‘The Great Compression’), 7 (‘The Great Divergence’) and 11.

Robert Chernomas and Ian Hudson (2017) The Prophet Doctrine: Economists of the Neoliberal Era, Chapter 4, ‘Milton Friedman. The godfather of the age of Instability’,  Pluto Press.

Paul Krugman (2012) End this Depression Now, Chapter 2 ‘Depression Economics’

Stephanie Kelton (2020) The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, Chapters 1 (‘Don’t Think of a Household’), 3 (The National Debt (That Isn’t)), and 4.