1. Macroeconomics

Macroeconomics is the branch of economics concerned with the behaviour and performance of an economy as a whole. Rather than examining the choices of a single household or firm, it asks broader questions: why do economies grow over time, what causes recessions, how does monetary policy affect inflation and employment, and what determines the value of one country's currency relative to another's.

1.1 Overview

The intellectual foundations of modern macroeconomics were laid in the 1930s when John Maynard Keynes articulated a systematic theory of aggregate demand and the conditions under which markets might settle into persistent unemployment equilibria. His insight — that the whole can behave very differently from the sum of its parts — gave birth to a tradition that has been extended, challenged, formalised, and debated ever since.

In the decades that followed, economists built increasingly rigorous models of the open economy, incorporating expectations, capital mobility, and the interactions between goods markets and financial markets. The Mundell-Fleming framework of the 1960s, the monetary approach to the balance of payments, and Dornbusch's celebrated exchange rate overshooting model all represent milestones in this tradition, each adding nuance to our understanding of how domestic and international forces interact.

Contemporary macroeconomics blends these theoretical traditions with empirical discipline. Dynamic stochastic general equilibrium models, factor-based decompositions, and high-frequency financial data have dramatically expanded what economists can say — and test — about macroeconomic dynamics. Yet the core questions remain recognisably the same ones that motivated earlier generations of thinkers.

1.2 Topics Covered

• Interest Rate Parity — The foundational principle linking interest rate differentials across countries to exchange rate movements, in both its covered and uncovered forms