21

Core Course-V
MA ECONOMICS (CBCSS)
II SEMESTER
ECO2 C05 - MICROECONOMICS: THEORY AND APPLICATIONS-II
(Credit 5)

Module I: Intertemporal Choice and Capital Decisions

Capital and the rate of return- Determining the rate of return- Demand for future goods-
Utility maximisation- Effects of changes in r- Supply of future goods- Equilibrium price of
future goods- Rate of return- Real interest rates and nominal interest rates- Pricing of risky
assets- The firm’s demand for capital- The net present value criterion for capital investment
decisions- Adjustment for risks- Diversification versus non-diversifiable risks- The capital
assets pricing model.
Module II: General Equilibrium and Welfare Economics
Elements of general equilibrium analysis-General equilibrium of exchange- General
equilibrium of production- Efficiency of competitive markets- Welfare economics- Criteria of
social welfare-Pareto optimality-Kaldor-Hicks compensation criterion- Scitovsky criterion-
Deriving a Social welfare function- Theory of second best- Arrow’s impossibility theorem-
Rawls theory of justice- First Theorem of welfare economics- Second Theorem of welfare
economics.
Module III: Externalities and Public Goods
Externalities-Negative externalities in consumption and production-Positive externalities in
consumption and production-Externalities and inefficiency-Ways of correcting market
failure- Externalities and property rights-Coase theorem- Common property resources-
Tragedy of commons-Public goods-Characteristics- Public goods and market failure-
Provision of public goods- Free rider problem- Lindahl pricing.
Module IV: Asymmetric information
Asymmetric information- Implications of asymmetric information- The lemons problem-
Adverse selection- Hidden information- Moral hazard (hidden action)- Insurance markets-
Market signalling- Principal-agent problem- The efficiency wage theory.
Module V: Behavioural Economics
Behavioural economics- Reference points and consumer preferences- Rules of thumb and
biases in decision making.
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Core Course-VI
MA ECONOMICS (CBCSS)
II SEMESTER
ECO2 C06 - MACROECONOMICS: THEORIES AND POLICIES II
(Credit 5)

Module I: Classical vs Keynes

Classical Macroeconomics -Classical revolution, production, employment, equilibrium
output and employment, quantity theory of money, classical aggregate demand curve,
classical theory of interest rate, policy implications of the classical equilibrium model.
Classical model of output and employment
Keynes’s General Theory: Keynes’ main propositions, Keynes’s analysis of the labour
market, Keynes’s rejection of Say’s Law, Keynes and the quantity theory of money,
Keynesian aggregate demand and supply schedules, Keynes and international
macroeconomics- How to pay for the war, Causes and consequences of the Great Depression,
Keynesian policy conclusions.
Module II: Monetarism
The quantity theory of money approach, The expectations-augmented Phillips curve analysis,
The monetary approach to balance of payments theory and exchange rate determination, The
monetarist view of great depression, fiscal and monetary policy effectiveness.
Module III: New Classical Macroeconomics, Real Business Cycle School and Supply
Side Economics
The new classical macroeconomics: Rational expectations hypothesis, Lucas’ surprise
supply function, The inter-temporal substitution model, Policy ineffectiveness argument, The
Lucas critique- Real business cycle school: central features of real business cycle models, a
simple real business cycle model, macroeconomic policy in a real business cycle model -
Supply-side macroeconomics: Supply shocks and stagflation, Laffer curve, Policy
implications
Module IV: New Keynesian Economics
The fall and rise of Keynesian economics- A Keynesian resurgence, New Keynesian
economics, Core propositions and features of new Keynesian economics, Nominal rigidities,
Real rigidities, Small menu cost model, Implicit wage contract model- Efficiency wage
theories-Insider-outsider model, New Keynesian business cycle theory, Hysteresis and the
NAIRU, Policy implications
Module V: The New Political Macroeconomics
Political distortions and macroeconomic performance, Political influences on policy choice,
The role of government, Politicians and stabilization policy, Alternative approaches to the
political business cycle, The Nordhaus opportunistic model, The Hibbs partisan model, The
decline and renaissance of opportunistic and partisan models, Rational political business
cycles, Policy implications of politico-economic models: an independent central bank?, The
political economy of debt and deficits, Political and economic instability.
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Core Course-VII
MA ECONOMICS (CBCSS)
II SEMESTER
ECO2 C07 - PUBLIC FINANCE: THEORY AND PRACTICE
(Credit 5)

Module I: The Case for Public Sector

The role of government in the national economy-Concepts of club goods, public goods-
Tiebout hypothesis, merit goods, externalities, Pigovian tax.
Module II: Public Revenue and Policy
Theory of tax- Partial and general equilibrium analysis- Shifting and incidence of tax- Theory
of optimal taxation- Distributional considerations in public finance- Fiscal and monetary
policies -Comparative analysis- Balanced budget multiplier- Zero based budgeting.
Module III: Public Expenditure and Debt
Pure theory of public expenditure-Pricing of public utilities-Public choice theory-The Median
Voter theorem- Concept of subsidy-Macroeconomic impacts of deficits- Debt burden and
inter-generational equity- Sustainability of public debt and Domar stability condition.
Module IV: Fiscal Federalism
Theory of fiscal federalism- Theory of inter-governmental transfers- fiscal decentralisation-
Problems of centre-state financial relations in India-Vertical and horizontal imbalance in
inter-governmental transfers in India.
Module V: Indian Public Finance
Trend and sources of revenue in the union, states and local bodies in India-Trends in public
expenditure and public debt in India- VAT and GST in federal set-up- The FRBM Act-
Federalism and issues of Centrally Sponsored Schemes- Finance Commissions and the
changing centre- state relations during the reform period-Analysis of the latest union budget.
References
1. Harvey, Rosen, and Ted Gayer. Public Finance (2013)- McGraw-Hill Higher Education,
2. Dalton, Hugh. Principles of Public Finance (2003) - Vol. 1. Psychology Press,
3. Pen, Jan. Income Distribution (1974)-Penguin (Non-Classics).
4. Musgrave, RA and Musgrave, PB (1989)- Public Finance in Theory and Practice,
McGraw Hill, New York
5. Boadway, R. W. (1979) - Public sector economics Winthrop, Cambridge, MA.
6. Due, John F and Friedlaender, Ann F (1973)- Government Finance: Economics of the
Public Sector, Richard Irwin
7. Brown, Charles Victor, and Peter McLeod Jackson (1990) Public Sector Economics. Vol.
76. Oxford: Basil Blackwell,
8. Hyman, David N (1973), Economics of Government Activity, Holt, Rinchard and Winston
Inc
9. Browning, Edgar K., and Jacqulene M. Browning (1979) Public Finance and the Price
System. Macmillan,
10. Mundle, Sudipto, ed. Public Finance: Policy Issues for India (1997) Oxford University
Press, USA,
11. Dwivedi, D. N., ed. Readings in Indian Public Finance (1981) Chanakya Publications,
 27

Core Course-VIII
MA ECONOMICS (CBCSS)
II SEMESTER
ECO2 C08 - QUANTITATIVE METHODS FOR ECONOMIC ANALYSIS II
(Credit 5)

Module I: Probability and Probability Distributions

Concepts- Set theory- Permutations and Combinations, Definitions of Probability - classical,
empirical and axiomatic approaches- Addition and multiplication laws, conditional
probability- Bay’s theorem, Random variables- probability distribution- Mathematical
expectation- moments- Two random variables, joint, Marginal and conditional probability
functions, expectation of two random variables.
Module II: Discrete and Continuous Probability Distribution
Probability Distributions - Discrete Probability Distributions, Binomial , Poisson, Uniform -
simple applications-Continuous probability distributions- Normal, Lognormal and
Exponential Distributions (Derivations are not expected), concept of law of large numbers
and Central limit theorem.
Module III: Theory of Estimation
Statistical Inference, Concept of population, sample- Sampling distributions- Standard error-
Distributions of sample mean, Sample variance - chi square Student’s t, and F distributions-
Small and large sample properties of Z, t, Chi Square and F- Estimations of populations
parameters- point and interval estimation- Fisher’s properties of estimators-Confidence
interval for Mean and Proportion and variance- Methods of estimation-Methods of least
squares, Method of maximum likelihood.
Module IV: Testing of Hypothesis
Parametric and Non-parametric tests of Hypothesis - Testing of hypothesis- simple and
composite hypothesis- Null and alternative hypothesis- Type I and Type II error, Critical
region- Level of significance, Power of a test- Test procedure - Test of significance in respect
of Mean, Proportion, Variance and Correlation coefficient and their differences -Chi Square
test of goodness of fit, and test for independence of attributes. Non parametric tests, sign test,
Wilcoxon- Mann Whitney U Test, Signed rank test, Kruskal Wallis test, Wald-Wolfowitz
test.
Module V: Analysis of Variance
Analysis of Variance- Meaning, assumptions-One way classification and Two way
classifications, simple applications.
References
1. Taro Yamane, Statistics: An Introductory Analysis, Harper & Row, Edition 3, 1973
2. Hoel PG: Introduction to Mathematical Statistics, John Wiley & Sons, Edition 4, 1971
3. YP Agarwal: Statistical Methods: Concepts, Application and Computation, Sterling
Publishers 1986
4. Sidney Siegal, N. John Castellan: Non parametric Statistics for Behaviour Sciences,
Edition 2, 1988, Mc Graw-Hill
5. Tulsian, P.C and Vishal Pandey: Quantitative Techniques, Pearson Education, New Delhi
6. S.P. Gupta: Statistical Methods, Sulthan Chand and Sons, New Delhi.