COMPREHENSIVE MACROECONOMICS

MIND MAP
A. MATHEMATICAL FOUNDATIONS FOR MACROE-
CONOMICS
1. Functions and Relations
• Linear Functions
– Slope-intercept form: Y = mX + b
– Applications in consumption functions, tax schedules
– Linear approximations of non-linear economic relationships
• Non-linear Functions
– Logarithmic and exponential functions (growth modeling)
1−
– Cobb-Douglas production function: Y = AK L
)1/
– CES utility and production functions: U = (xi
• Difference Equations
– First-order: xt+1 = f (xt ), dynamics and stability
– Higher-order: xt+n = f (xt+n−1 , xt+n−2 , ..., xt )
– Applications in discrete-time economic models
– Steady-state solutions and convergence conditions
• Differential Equations
– First-order: ẋ = f (x)
– Systems of differential equations
– Continuous-time dynamics in growth models
– Phase diagrams for two-variable systems
• Stability Analysis
– Local vs. global stability
– Linearization techniques near steady states
– Eigenvalue analysis for stability determination
– Lyapunov stability conditions

2. Matrix Algebra
• Matrix Operations
– Addition, multiplication, transposition
– Determinants and their economic interpretation
– Matrix inversion techniques and applications
– Systems of equations in matrix form: AX = B
• Eigenvalues and Eigenvectors
– Characteristic polynomial: det(A − I) = 0
– Diagonalization of matrices: A = P DP −1
– Stability analysis using eigenvalues
– Principal component analysis applications
• Linear Economic Models
– IS-LM in matrix form

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 – Input-output analysis: Leontief model
– Dynamic multiplier analysis
– Vector autoregression (VAR) models

3. Calculus
• Differentiation
∂f
– Partial derivatives: ∂x i
df P ∂f dxi
– Total derivatives: dx = ∂xi dx
– Chain rule and its applications
– Elasticity calculations: ∂f x
∂x f
• Optimization
– Unconstrained: First and second-order conditions
– Constrained optimization: Lagrangian method L(x, ) = f (x)−(g(x)−
c)
– Kuhn-Tucker conditions for inequality constraints
– Dynamic optimization and intertemporal choices
• Comparative Statics
– Implicit function theorem applications
– Envelope theorem and its economic interpretations
∂F/∂p
– Comparative statics in equilibrium models: dx
dp = − ∂F/∂x
– Cross-price and income effects analysis

4. Dynamic Systems
• Discrete Time Models
– Cobweb model: Market adjustment processes
)+(1−)kt
– Solow model in discrete time: kt+1 = sA(kt1+n
– Overlapping generations in discrete time
– Convergence speed analysis
• Continuous Time Models
– Ramsey-Cass-Koopmans: k̇ = f (k) − c − (n+)k
– Phase diagrams construction and interpretation
– Saddle-path stability and transversality conditions
– Boundary value problems in economic dynamics

5. Probability & Statistics

• Descriptive Statistics
– Moments: Mean, variance, skewness, kurtosis
– Time series properties: Stationarity, autocorrelation
– Business cycle measurement metrics
• Probability Fundamentals
– Random variables and probability distributions
– Expectation and variance operators: E(X), V ar(X)
– Covariance, correlation, conditional probability

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 • Distributions in Economic Models
– Normal distribution: Central limit theorem applications
– Log-normal: Asset prices, income distribution
– Extreme value distributions: Market crashes modeling
– Power laws in economic phenomena
• Stochastic Processes
– Random walks and Brownian motion
– AR, MA, ARMA, and ARIMA processes
– Unit root processes and stochastic trends
– Stochastic differential equations in finance

B. CORE MACROECONOMIC THEORY

1. National Income Accounting
• Key Aggregates
– GDP: Y = C + I + G + (X − M )
– GNP: GDP + net factor income from abroad
– NNP: GNP - depreciation
– Personal income and disposable income
• Measurement Methods
– Expenditure approach: Sum of final uses
– Income approach: Sum of factor payments
– Output approach: Sum of value added
– Reconciliation of different approaches
• Real vs. Nominal Variables
– Price indices: Construction and interpretation
– CPI methodology and biases
– GDP deflator vs. consumer price index
– Chain-weighted measures of real GDP
• Flow of Funds and Balance Sheets
– Sectoral financial balances: (S − I) + (T − G) + (M − X) = 0
– National balance sheets and wealth accounts
– Stock-flow consistent modeling approaches
– International investment position

2. Classical and Keynesian Models

• Classical Model
– Say’s Law: Supply creates its own demand
– Quantity theory of money: M V = P Y
– Labor market clearing and wage flexibility
– Monetary neutrality and dichotomy
• Keynesian Cross Model
– Aggregate expenditure: AE = C + I + G + (X − M )
– Planned vs. actual expenditure
– Equilibrium condition: Y = AE

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 – Simple multiplier: 1−M1 P C
• IS-LM Model Development
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– IS curve: Y = 1−c(1−t) [c0 + I(r) + G + X − mY ]
– LM curve: M/P = L(Y, r)
– Equilibrium determination of income and interest rate
– Policy analysis: Fiscal and monetary multipliers
– Liquidity trap and policy ineffectiveness
• Fiscal and Monetary Policy
– Expenditure multipliers: ∆Y 1
∆G = 1−c(1−t)+m
−c
– Tax multipliers: ∆Y
∆T = 1−c(1−t)+m
– Monetary policy transmission mechanisms
– Policy mix and coordination issues
– Effectiveness under different exchange rate regimes

3. Consumption and Investment Theories

• Consumption Theories
– Keynesian consumption function: C = C0 + cYd
– Permanent Income Hypothesis: C = kYP
– Life Cycle Hypothesis: Intertemporal optimization
– Behavioral extensions: Habit formation, prospect theory
– Precautionary saving and uncertainty
• Investment Theories
– Accelerator model: I = (Yt − Yt−1 )
– Neoclassical theory: I = f (M P K/C)
M arket V alue
– Tobin’s q: q = Replacement Cost
– Adjustment costs and investment dynamics
– Uncertainty and irreversibility effects
– Real options approach to investment
• Household Choice Models
– Intertemporal budget constraint
– Euler equations and consumption smoothing
– Risk aversion and precautionary saving
– Housing investment and durable goods

4. Money, Banking, and Inflation

• Money Demand Theories
– Classical approach: Cambridge equation
– Keynesian motives: Transactions, precautionary,
q speculative
– Baumol-Tobin inventory model: M d = kP2rY
– Friedman’s modern quantity theory: Portfolio approach
– Money demand stability and velocity
• Money Supply and Banking
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– Money creation process and money multiplier: m = rr+er+cr

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 – Central bank operations and balance sheet
– Bank capital, liquidity, and regulatory constraints
– Shadow banking and financial intermediation
• Inflation Theories
– Demand-pull inflation: Excess aggregate demand
– Cost-push inflation: Supply shocks and wage pressures
– Expectations-augmented Phillips curve: =e −(u − u∗ )
– Modern Phillips curve: New Keynesian Phillips curve
– Monetary approach: Long-run neutrality
• Money and Prices
– Quantity theory and velocity: Long-run inflation
– Neutrality and superneutrality propositions
– Seigniorage and inflation tax
– Hyperinflation dynamics and stability
– Deflation risks and zero lower bound issues

5. Open Economy Macroeconomics

• Balance of Payments
– Current account: Trade in goods and services
– Capital and financial account: Asset transactions
– Statistical discrepancy and measurement issues
– Sustainability analysis and external balance
• Exchange Rate Determination
– Purchasing Power Parity (PPP): E = P/P ∗
– Interest Rate Parity (IRP): F −S
S = i − i∗
– Portfolio balance models
– Exchange rate overshooting and volatility
• Exchange Rate Regimes
– Fixed exchange rates: Mechanics and constraints
– Flexible exchange rates: Adjustment mechanisms
– Managed float and intervention strategies
– Currency boards, dollarization, and monetary unions
– Optimal currency area theory
• Mundell-Fleming Model
– IS-LM-BP framework
– Perfect vs. imperfect capital mobility
– Policy trilemma (impossible trinity)
– Policy effectiveness under different regimes
– External adjustment processes and J-curve effects

6. Economic Growth Models

• Harrod-Domar Model
s
– Warranted growth rate: gw = v
– Natural growth rate: gn = n

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 – Knife-edge stability problems
– Savings constraints and capital output ratio
• Solow-Swan Growth Model
– Fundamental equation: k̇ = sf (k) − (n+)k
– Steady state conditions: sf (k ∗ ) = (n+)k ∗
– Golden rule: f ′ (kg ) = n+
– Technological progress and growth accounting
– Conditional convergence predictions
• Endogenous Growth Theory
– AK model: Linear production and non-convergence
– Learning-by-doing: Knowledge spillovers
– Human capital accumulation: H = f (education, training)
– R&D models: Product variety and quality ladders
– Scale effects and growth policy implications
• Unified Growth Theory
– Malthusian epoch dynamics
– Demographic transition mechanisms
– Industrial revolution and modern growth
– Long-run development patterns and divergence

7. Business Cycle Theories

• Real Business Cycle Theory
– Productivity shocks as cycle drivers
– Intertemporal substitution of leisure
– Technology shocks propagation
– Calibration methodology and impulse responses
• New Keynesian Models
– Price and wage rigidities: Staggered contracts
– Menu costs and near-rationality
– Monopolistic competition framework
– Sticky information and rational inattention
• Financial Accelerator Models
– Credit constraints and amplification mechanisms
– Balance sheet effects on investment
– Financial frictions and business cycles
– Leverage cycles and systemic risk
• Overlapping Generations Models
– Two-period OLG structure
– Life-cycle saving and capital accumulation
– Intergenerational transfers
– Dynamic inefficiency possibilities
• Political Business Cycles
– Opportunistic political cycles
– Partisan theory and policy preferences
– Rational political business cycles

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 – Fiscal rules and cycle moderation

8. Employment and Unemployment

• Classical Theory
– Labor market clearing: W/P = M P L
– Voluntary unemployment concept
– Real wage adjustment mechanisms
– Say’s Law implications for employment
• Keynesian Theory
– Effective demand principle
– Involuntary unemployment definition
– Wage rigidity sources
– Non-market clearing equilibrium
• Natural Rate of Unemployment
– Structural determinants
– NAIRU concept: Non-Accelerating Inflation Rate of Unemployment
– Hysteresis effects and persistence
– Institutional factors and labor market frictions
• Search and Matching Models
– Beveridge curve: Vacancies vs. unemployment
– Matching function and efficiency
– Job creation and destruction flows
– Bargaining and wage determination
• Phillips Curve Analysis
– Original Phillips relation: Ẇ = f (U )
– Expectations-augmented version: =e +(u∗ − u)
– New Keynesian Phillips curve: t = Ett+1 + yt
– Empirical stability and flattening debates

9. General Equilibrium in Macroeconomy

• Aggregate Demand-Aggregate Supply
– AD curve derivation from IS-LM
– Short-run AS: Price/wage rigidities
– Long-run AS: Natural rate output
– Adjustment dynamics between equilibria
– Supply and demand shocks analysis
• Equilibrium under Market Structures
– Perfect competition: P = M C efficiency
– Monopolistic competition: Product variety
– Oligopoly: Strategic interactions
– Markup pricing and business cycles
• Dynamic General Equilibrium
– Intertemporal optimization by agents
– Market clearing conditions

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 – Rational expectations equilibrium
– Temporary vs. permanent equilibrium
• Welfare Analysis
– Pareto efficiency in macro models
– Market failures and macroeconomic externalities
– Optimal policy design principles
– Social welfare functions and equity-efficiency tradeoffs

10. Public Finance and Fiscal Policy

• Government Budget Constraint
– Flow constraint: G + rB = T + ∆B + ∆M
– Intertemporal budget constraint: Present value approach
– Sustainability analysis and debt dynamics
– Primary deficit vs. overall deficit
• Fiscal Multipliers
– Spending multiplier determinants
– Tax multipliers and timing effects
– Balanced budget multiplier: ∆Y = ∆G
– State-dependent multipliers: Recession vs. expansion
– Open economy considerations and leakages
• Ricardian Equivalence
– Theoretical conditions: Perfect foresight, no liquidity constraints
– Tax smoothing implications
– Empirical tests and limitations
– Generational accounting framework
• Fiscal Policy Effects
– Crowding out channels: Interest rate and exchange rate
– Expectational effects on consumption and investment
– Debt sustainability and risk premia
– Fiscal consolidation: Expansionary contractions debate
– Fiscal rules and policy credibility

11. Financial Markets and Monetary Policy

• Interest Rate Determination
– Loanable funds theory: Saving and investment
– Liquidity preference theory: Money demand and supply
– Term structure models: Expectations hypothesis
– Risk premia and liquidity effects
• Central Bank Operations
– Monetary base control: Open market operations
– Reserve requirements and discount window
– Balance sheet management and composition
– Unconventional policies: QE, credit easing, forward guidance
• Monetary Policy Rules

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 – Taylor rule: i = r∗ + +a(−∗ ) + b(y − y ∗ )
– Inflation targeting frameworks
– Price level targeting alternatives
– Nominal GDP targeting proposals
– Discretion vs. commitment debates
• Monetary Transmission Mechanism
– Interest rate channel: Cost of capital effects
– Exchange rate channel: Net exports
– Asset price channel: Wealth effects
– Credit channel: Bank lending and balance sheet effects
– Expectations channel: Forward guidance

12. Advanced Topics

• Overlapping Generations Models
– Demographic structure and implications
– Social security analysis
– Asset pricing in OLG framework
– Multiple equilibria possibilities
• Ramsey Model
e−t u(ct )dt
– Social planner problem: max0
– Decentralized equilibrium
– Optimal taxation principles
– Modified golden rule: f ′ (k ∗ ) = +n
• Dynamic Stochastic General Equilibrium
– Micro-foundations and optimization
– Shocks specification and propagation
– Log-linearization techniques
– Bayesian estimation approaches
– Policy analysis applications
• Rational Expectations
– Formal definition: Et [xt+1 |t ]
– Lucas critique and policy evaluation
– Policy ineffectiveness proposition
– Learning models and bounded rationality

C. APPLICATION & PROBLEM-SOLVING TECH-

NIQUES
1. Graphical Analysis
• IS-LM-BP Diagrams
– Construction methodology
– Slope determinations and shifts
– Policy analysis protocols
– Special cases: Liquidity trap, perfect capital mobility

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 • AD-AS Analysis
– Short-run vs. long-run dynamics
– Stagflation representation
– Supply shocks vs. demand shocks
– Policy response visualization
• Solow Diagram
– Per capita production function
– Saving and depreciation lines
– Steady state determination
– Comparative statics visualization
• Phase Diagrams
– Nullcline construction
– Vector field plotting
– Equilibrium classification
– Transitional dynamics illustration

2. Dynamic Analysis Techniques

• Phase Diagram Analysis
– System reduction to canonical form
– Nullcline derivation and plotting
– Stability classification
– Saddle-path solutions: Stable arms
• Eigenvalue Methods
– Characteristic equation derivation
– Stability conditions from eigenvalues
– Eigenvectors and adjustment paths
– Complex eigenvalues and cycles
• Numerical Methods
– Simulation approaches
– Impulse response functions
– Sensitivity analysis techniques
– Parameter calibration strategies

3. Comparative Statics
• Total Differentiation
– System of equations approach
– Implicit function theorem application
– Sign determination techniques
– Elasticity calculations
• Matrix Methods
– Jacobian matrix construction
– Cramer’s rule application
– Matrix inversion approach
– Stability and comparative statics connection

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4. Empirical Methods
• Time Series Analysis
– Stationarity testing
– VAR and VECM models
– Impulse response analysis
– Forecast error variance decomposition
• Panel Data Methods
– Fixed and random effects
– Dynamic panel estimators
– Instrumental variables approach
– Cross-country growth regressions
• Structural Estimation
– Calibration of DSGE models
– Maximum likelihood methods
– Bayesian techniques
– Model comparison metrics

5. Advanced Mathematical Tools

• Optimal Control Theory
– Hamiltonian formulation: H = f (x, u, t) + g(x, u, t)
– Maximum principle
– Transversality conditions
– Economic interpretation of co-state variables
• Dynamic Programming
– Bellman equation: V (xt ) = maxut {F (xt , ut ) + V (xt+1 )}
– Value function iteration
– Policy function derivation
– Recursive competitive equilibrium
• Stochastic Calculus
– Ito’s lemma applications
– Stochastic differential equations
– Brownian motion processes
– Asset pricing applications

D. CONTEMPORARY MACROECONOMIC ISSUES

1. Financial Crises and Macroprudential Policy
• Crisis Anatomy
– Leverage cycles and financial fragility
– Liquidity vs. solvency crises
– Contagion mechanisms and systemic risk
– Early warning indicators
• Macroprudential Tools
– Countercyclical capital buffers

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 – Loan-to-value and debt-to-income limits
– Liquidity coverage ratios
– Stress testing frameworks
• Central Bank Crisis Response
– Lender of last resort function
– Emergency liquidity facilities
– Unconventional monetary policies
– International coordination mechanisms

2. Inequality and Macroeconomics

• Measurement Approaches
– Gini coefficient and Lorenz curve
– Income shares analysis
– Wealth distribution metrics
– Mobility measures and persistence
• Macroeconomic Implications
– Aggregate demand effects
– Saving and consumption differences
– Political economy consequences
– Growth and stability interactions
• Policy Responses
– Progressive taxation designs
– Transfer programs and safety nets
– Predistribution policies
– Human capital investment strategies

3. Environmental Macroeconomics
• Climate Change Economics
– Integrated assessment models
– Social cost of carbon estimation
– Uncertainty and discounting issues
– Green growth accounting
• Environmental Policy Instruments
– Carbon pricing mechanisms
– Green fiscal reforms
– Environmental regulation impacts
– Green finance frameworks
• Sustainability Metrics
– Beyond-GDP measures
– Natural capital accounting
– Environmental Kuznets curve
– Ecological macroeconomics approaches

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4. Labor Market Transformation
• Technological Change
– Skill-biased technical change
– Routine-biased technical change
– Task approach to labor markets
– Automation and employment effects
• Globalization Impacts
– Trade and labor market adjustment
– Global value chains and wage effects
– Labor mobility and migration
– Offshoring and reshoring dynamics
• New Work Arrangements
– Gig economy and platform work
– Remote work implications
– Labor market polarization
– Policy responses and social protection

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