,TABLE OF CONTENTS a a a
Part I: MONEY AND ITS PRICES.
a a a a a
1. Introduction and Overview.
a a a
2. Money, Money Supply and Interest.
a a a a a
3. Bonds, Loanable Funds & Interest Rates.
a a a a a a
4. Interest Rates in More Detail.
a a a a a
Part II: MONEY AND OVERALL ECONOMY.
a a a a a
5. Financial Markets through Time.
a a a a
6. Aggregate Supply & Aggregate Demand.
a a a a a
7. Banks and Money.
a a a
Part III: CENTRAL BANKS.
a a a
8. Central Banks.
a a
9. Monetary Policy Tools.
a a a
10. The Money Supply Process.
a a a a
11. Monetary Policy & Debates.
a a a a
Part IV: THE BANKING SYSTEM.
a a a a
12. Bank Management.
a a
13. Bank Risk Management & Performance.
a a a a a
14. Banking Regulation.
a a
Part V: FINANCIAL MARKETS.
a a a
15. Money Markets.
a a
16. Bond Markets.
a a
17. Stock Market & Efficiency.
a a a a
18. Mortgage Market.
a a
Part VI: GLOBAL FINANCIAL MARKETS.
a a a a
19. FX.
a
20. Global Financial Architecture.
a a a
Part VII: FINANCIAL INSTITUTIONS.
a a a
21. Thrifts and Finance Companies.
a a a a
22. Insurance and Pensions.
a a a
23. Mutual Funds.
a a
24. Investment Banks and Private Equity.
a a a a a
, CHAPTERa2:aMoney,aMoneyaSupply,aandaInterest
2-1 SectionaReview
1. Whataisatheadifferenceabetweenamoneyaandacurrency?aWhenaareatheyatheasame?aWhyamightatheyabeadifferent?
ANS:aMoneyaisaanythingagenerallyaacceptedainaexchangeaforagoodsa&aservices.aCurrencyaisaissuedabyaaabankaoratheagov
ernment,abutacurrencyaisanotanecessarilyamoney.aTheyaareatheasameawhenatheyaareaacceptedainaexchangeaforagoodsaan
daservices.aCurrenciesacanastopabeingamoneyaifapeopleadon’taacceptathemainaexchangeaforagoodsaandaservices.aIfaaagrou
paofapeopleastopausingacurrencyatoagetagoodsaandaservicesabutainsteadauseabananas,athenatheabananasaareatheamoney.
2. Howamanyapricesamustaaabarteraeconomyahaveaifatheaeconomyahasafouragoods?aWhataifaitahasa400agoods?aExplaina
whyahavingaaamoneyainatheasecondacaseaisabeneficial.
ANS:a4agoodsa=a6aprices;a400agoodsa=a79,800aprices.aMoneyaallowsausatoaspecializeaandareduceaourasearchacost.a Moneya
allowsausatoareduceatheanumberaofastatedapricesaweaneed.
3. Youareadaaanewsastoryaaboutaaacountryathataisasufferingafromarapid,aongoingaincreasesainatheacostaofaliving.aWhichac
haracteristicaofamoneyaisabeingadirectlyanegativelyaimpactedainathataeconomy?
a. Unitaofaaccount
b. Mediumaofaexchange
c. Storeaofavalue
d. DoubleacoincidenceaofawantsaAN
S:aC
2-2 SectionaReview
1. Bobbyaisaconfused.aHeastates:a“Sinceaprisonersaareanotaallowedatoasmokeainaprisonsaanyalonger,
Radford’saexamplesaofacigarettesainaPOWacampsanoalongeraapplies.”aHowawouldayouaexplainatoaBobbyahowaRadford’
sastoryademonstratesatheaconceptsaofatheacriteriaaofamoney,aasawellaasatheaimportanceaofachangesainatheamoneyasupply?
ANS:aAnyaassetathataisaableatoabeastandardized,adivisible,adurableaandainademandacouldabeacurrency,aasalongaasaitaisaaame
diumaofaexchange,aisaaaunitaofaaccountaandahasastoreaofavalue.a Cigarettesawereamoney.
, 2. ProponentsaofatheaGoldaStandard,aorausingagoldaasamoney,aoftenaargueathataitawillakeepainflationaunderacontrol.aHowa
doesatheaexperienceaofaEuropeainatheasixteenthacenturyaraiseadoubtsaaboutathataclaim?
ANS:aIfapeopleastartatoahoardagoldaorasilver,athereamayanotabeaenoughamoney,aandaanaeconomyacouldaslideaintoarecessi
on.a Ifagoldaorasilveraincreasesatooarapidlyatheaeconomyacouldasufferainflation.
3. RicardoaandaFriedmanaagreeathataifatheamoneyasupplyaincreasesa“tooaquickly”atheafollowingahappens:
a. Thearateaofainflationadecreases.
b. Thearateaofarealaeconomicagrowthaincreases.
c. Thearateaofainflationaincreases.
d. Thealevelaofaemploymentadecreases.
ANS:aC
2-3 SectionaReview
1. Aacriticaofamoneyaeconomicsaonceastated,a“ifayouacannotameasureatheamoneyasupplyaaccurately,aitaisanotaworthadisc
ussingaataall.”aHowawouldayouarefuteathisastatement?
ANS:aDueatoachangesainafinancialamarkets,afinancialainnovationaandachangesainatheawayabanksaoperate,aledatoatheadecli
neainatheausefulnessaofaM2aasaaamonetaryaaggregate.
2. Economistsaareasearchingaforaaa“good”ameasurementaofatheamoneyasupply.aWhataconstitutesaaagoodameasurementaof
atheamoneyasupply?
ANS:aToaeconomists,aaa“good”ameasurementaofatheamoneyasupplyaisaoneathataconformsatoaeconomicatheoriesaregardingai
nflationaandatheaeconomy.aForaexample,aifatheamoneyasupplya(accordingatoaaaparticularameasurement)aincreasesafasterat
hanatheagrowtharateaofatheaeconomy,athenaeconomicatheoryasuggestsathatainflationashouldaoccur.aOnatheaotherahand,aifat
heamoneyasupplya(accordingatoaaaparticularameasurement)aincreasesatooaslowlyarelativeatoatheagrowtharateaofatheaecono
my,athenaeconomicatheoryasuggestsathatathisawillaresultainaaarecession.aWhenatheameasurementaofatheamoneyasupplyacoi
ncidesawithatheseaeconomicapredictions,athenathataparticularameasurementahasatheapotentialatoabeaaa“good”ameasuremen
taofatheamoneyasupply.aDuringacertainaperiodsaofatime,abothaM1aandaM2ahaveabeen
consideredatoabea“good”ameasurementsaofatheamoneyasupply.aHowever,athereahaveaalsoabeenaperiodsaofatimeawhereatheac
hangesainaM1aoraM2adidanotacoincideawithaeconomicatheory.
3. Whichaofatheafollowingaisatheabroadestaoramostainclusiveameasurementaofatheamoneyasupply?
a. M1
b. M2
c. M3
d. M0
ANS:a B
