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Principles of Macroeconomics

Course Code: ECON-102

Title: Principles of Macroeconomics

Credit Hours: 03

Course Objectives:

This course is designed for the beginners with no formal background or little acquaintance with economics. The objective is to give the students an idea of the basic concepts, tools of analysis and terminologies used in macroeconomics. Emphasis will be on the use of graphs, diagrams and numerical tables/schedules for exposition.

Learning Outcomes:

Upon the completion of the course, students should be able to

  • Understand the structure of the economy and have a thorough understanding of the key macroeconomic terminologies
  • Apply these macro-economic theories to the real-world situations.

Course Contents:


  • The economy in aggregate
  • Complexities of the world of business
  • Scope of macroeconomics
  • Brief account of the development of macro-economic after the World War-II
  • Concept of business cycles: Boom and Depression
  • Concepts of Inflation and Unemployment
  • Price Indices and Inflation
  • The simple macroeconomic models
  •  Lead and Lagged variables
  • Exogenous and Endogenous variables and their functional relationships
  • Macro-models as abstraction from the real economy

Macroeconomics: The Classical Framework   

Ingredients of the classical model:

  • The Says Law of Market
  • The Quantity theory of money
  • The marginal productivity theory
  • Equilibrium in the goods and money market
  • A critical appraisal of the classical model
  • Classical Dichotomy

National Income    

·         Definition and Concept of national income

o   Gross Domestic Product (GDP)

o   Gross National Product (GNP)

o   Personal Income

o   Disposable Income

o   Per Capita Income

·         Computation of national income: Product, Income and Expenditure approaches

o   Measurement of GNP:

1.      Expenditure (demand) approach

2.      Product (supply) approach

3.      Income (factor rewards) approach

o   Problems in the computation of national income

·         GNP as a measure of welfare

·         The circular flow of National Income

·         Injections into and Leakages from the economy:

o   Saving and Investment

o   Exports and Imports

·         Domestic Absorption

·         Per Capita Income and Standard of living

·         Nominal versus Real income

·         The GDP deflator

·         The underground economy

Money and Banking Money:

  • Definition of Money
  • Forms of Money
  • Functions of Money
  • The Demand for Money
  • The Liquidity Preference/ Portfolio Balance Approach
  • The supply of money: M1, M2, M3 concepts
  • The money supply multiplier and the role of banking system
  • Instruments of credit control and the role of central bank
  • Commercial banking
  • Monetary policy: brief introduction
  • Central Bank and its functions with reference to the State Bank of

Public Finance and Taxation      

  • Sources of public revenue
  • Various forms of taxes:
    • Direct and Indirect
    • Income and Commodity taxes
    • Sales Tax
    • Excise Tax
    • Customs
  • Non-tax revenues
  • Major heads of public expenditure
  • Revenue and Capital account
  • Fiscal policy: meaning and objectives

International Trade

  • Global distribution of resources
  • Concept of imports and exports
  • Currency Exchange Rates
  • Balance of Payments: causes of deficits in BOP of Pakistan and remedial measures

Recommended Books:

  • N. Gregory Mankiw, Principles of Economics- Latest Edition- South- West Publishers.
  • McConnell, Campbell & Stanley Brue, and Sean Flynn, Macroeconomics, Latest Edition. (McGraw-Hill Economics)
  • Samuelson and Nordhaus – Economics –Latest Edition – McGraw Hill. Inc.
  • Parkin, Michael – Macroeconomics, Latest Edition – Prentice Hall.

Past Papers Punjab University: