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Synthesising Macroeconomic Ideas for Policy

Critique of the New Consensus Macroeconomics and Implications for India (India Studies in Business and Economics) by Dilip M Nachane, New Delhi: Springer, 2018; pp 407, 6,814 (hardcover).

 

Dilip M Nachane, in his latest book titledCritique of the New Consensus Macroeconomics and Implications for India, has covered a vast area on theoretical developments under different macroeconomic schools explaining their rationale. As macroeconomics attempts to explain aggregate fluctuations in an economy by looking for changes in business cycle attributable to causal factors, it serves a very important purpose of interpreting market signals by applying such a theory. A fundamental principle of macroeconomics is that aggregate demand and supply play out in the market in a behavioural context. The rule of the whole is considered different from the behaviour of its parts. The mainstream theory assumes rational expectation and general equilibrium as normal under which rate variables, that is, inflation, interest, exchange, wage, unemployment, etc, are determined. These rate variables impact the allocation of resources for production, consumption and investment.

If the wages and prices are completely flexible, as assumed, in classical economics, everybody willing to work has an opportunity to get employed. The interest rate in the money and loan markets and wage rate in the labour market adjust to maintain equilibrium. But, in reality, market is not so frictionless, and hence, there is unemployment and market failures. There is a major question on whether market is self-correcting or needs intervention to achieve policy objectives. The mainstream school of macroeconomics offers a consensus theory to explain economic growth and stability, but major controversies still persist. Distilling these intellectual contributions lucidly and comprehensively, the book prepares the readers to evaluate the recent global financial crisis (GFC), including its impact on India and the policy response to
contain its fallout.

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Updated On : 10th Feb, 2020

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