Abstract
After the global recession of 2008–2009, the world economy started showing signs of recovery in 2010. In particular, the developing countries witnessed a relatively more favourable growth pattern during 2010. However, the growth scenario remained less promising in several high-income countries, as reflected in high unemployment rates and spare capacity (Global Economic Prospects, World Bank, 2011). Contrary to wishful expectations, 2011 has been quite an eventful year in terms of macroeconomic and financial market implications on policymaking and doing business. For instance, the ‘Arab spring’ and the associated events have had considerable implications on the global financial markets in general and the same in the middle-east region in particular. On the other hand, the lingering economic crisis in several EU member countries (for example, Ireland, Greece, Italy) has created a wider ripple effect both within the bloc and across the globe.
In recent times, while the economic crisis in each witnessing territory has been triggered by a certain country-specific macroeconomic event in addition to the global recession effect, the interrelationship between the product and the financial markets has played a key role in every case in determining the magnitude of the same. In particular, the speed of recovery, especially in response to the government policy interventions has been a major function of such inter-linkage. In other words, there is a growing need for professionals to understand the working of the macroeconomic framework not only for doing business in the current period, but also to successfully predict the foreseeable future.
The present title by Murali Iyengar has been conceptualized from the ideas developed by the author during a lecture tour in India in the recent past. The book intends to facilitate the understanding of macroeconomic principles and concepts in a global setting, without unnecessary intrusion of analytical tools that are too technical in nature. The decision makes the book an informative and fluent read for the managers trying to develop a quick perspective on macroeconomic issues of contemporary interest.
The book consists of 10 major chapters, and attempts to underline the core macroeconomic concepts important for doing business. After an introductory section, Chapter 2 deals with the basic discussion on market forces, by starting with the preliminary concepts on demand and supply conditions. Chapter 3 discusses the key macroeconomic concepts including various approaches to a national income accounting method. Chapter 4 covers the equilibrium condition and other relevant issues relating to the goods and the services market and the multiplier effect. Chapter 5 deals with the money market and explains the process of money creation and transmission with examples. Chapter 6 notes various causes and the consequences of inflation. Chapter 7 deals with issues pertaining to unemployment and related concerns. Chapter 8 covers the basic concepts behind international trade, including classical trade theories, sources of comparative advantage, trade barriers, balance of payments related concerns and the function of the foreign exchange market. Chapter 9 analyzes the interrelationship between capital flows, interest rates and GDP. Chapter 10 covers the economic effects of the short-run and long-run aggregate demand and supply curves, in the light of expansionary fiscal and monetary policies under different currency regimes. Finally Chapter 11 discusses the subprime mortgage crisis in the US.
The present volume is a commendable effort by the author and would be useful to Indian managers with a non-economics background owing to a number of reasons. First, the book quite efficiently explains the basic concepts graphically, leading to clarity of understanding. Second, every chapter generally includes an Indian perspective, which enables the reader to link the theoretical perspective with practical experiences. Third, the discussion on fiscal and monetary policy interventions quite aptly explains the dilemma for the policymakers (for example, the Reserve Bank of India), thereby presenting their actions/inactions in a better light. Fourth, a very detailed glossary of economic terms has been incorporated. Finally, a concise appendix has been included with certain data and advanced graphical representations.
The ambitious coverage of the book however raises expectations of the reader and certain improvements in its subsequent editions would definitely be welcome. First, the latest period reported in several tables of the volume is 2008–2009. Coverage of data up to 2010–2011 could have enabled the reader to understand the effects of the global recession on financial markets in a more convincing manner. Second, discussion of adaptive expectation and rational expectation in greater detail could have been more helpful for the reader to better appreciate the movements of various key macroeconomic indicators in these turbulent times. Third, while the discussion on interest rate and capital flows has been incorporated, the same on foreign institutional investment in adequate degree is somehow missing. Finally, the volume notes that Central Statistical Organisation (CSO) currently uses 1999–2000 as the base year to calculate GDP at constant prices, which actually has been changed to 2004–2005 for some time. These shortcomings are likely to limit the appeal of the volume for the more advanced readers.