M&B / Dean Croushore

Contents

Chapter 1: Introduction to Money and Banking What’s in This Text?
The Value of Money ad Banking for Everyday Life
Why is Government Policy So Crucial for Money and Banking?
Ten (Surprising) Facts Concerning Money and Banking
1. Most financial formulas—no matter how complicated they look—are based on the compounding of interest
2. More U.S. currency is held in foreign countries than in the United States
3. Interest rates on long-term loans generally are higher than interest rates on short-term loans
4. To understand how interest rates affect economic decisions, you must account for expected inflation
5. Buying stock is the best way to increase your wealth—and the worst 6. Banks and other financial institutions made major errors that led to the financial crisis of 2008.
7. Recessions are difficult to predict.
8. The Fed creates money by changing a number in its computer system. 9. In the long run, the only economic variable the Federal Reserve can affect is the rate of inflation—the Fed has no effect on economic activity. 10. You can predict how the Federal Reserve will change interest rates using a simple equation.

PART ONE: MONEY AND THE FINANCIAL SYSTEM

Chapter 2: The Financial System and the Economy
Financial Securities
Debt and Equity
Differences Between Debt and Equity
Matching Borrowers with Lenders
Direct Versus Indirect Finance
Financial Intermediaries
Functions of Financial Intermediaries
Financial Markets
The Structure of Financial Markets
How Financial Markets Determine Prices of Securities
Calculating the Price of a Security
The Financial System
The Financial System and Economic Growth
What Happens When the Financial System Works Poorly?
Application to Everyday Life: What Do Investors Care About?
Five Determinants of Investors’ Decisions
How to Calculate a Security’s Expected Return
How to Calculate the Standard Deviation of the Return to a Security
Data Bank: Default Risk on Debt
Data Bank: How Much Risk Do Investors Face from Inflation?
Choosing a Financial Investment Portfolio

Chapter 3: Money and Payments
How We Use Money
Medium of Exchange
Gresham’s Law and Money in P.O.W. Camps
Unit of Account
Store of Value
Standard of Deferred Payment
The Payments System
Outside Money
Inside Money
Counting Money
Measuring the Money Supply
The Federal Reserve’s Monetary Aggregates
The Case of the Missing Currency Alternative Measures of Money
Application to Everyday Life: What Do You Do with Your Change?

Chapter 4: Present Value
The Present Value of One Future Payment
Investing, Borrowing, and Compounding
Discounting
The General Form of the Present-Value Formula Timelines to Describe Payment Amounts
The Present Value of a Perpetuity
The Present Value of a Fixed-Payment Security
The Present Value of a Coupon Bond
The Present Value When Payments Occur More Often Than Once Each Year
Using Present Value to Make Decisions
Comparing Alternative Offers
Buying or Leasing a Car
Interest-Rate Risk
The Relationship Between the Market Interest Rate and the Price
Using the Present-Value Formula to Calculate Payments
Looking Forward or Looking Backward at Returns
One Payment in One Year
One Payment More Than One Year in the Future
Perpetuity
Fixed-Payment Security
Coupon Bond
Payments Made More Frequently Than Once Each Year
Data Bank: Do Our Calculations Match What Is Reported in the Financial Press?
Policy Insider: Annual Percentage Yield
Application to Everyday Life: How to Negotiate a Car Lease

Chapter 5: The Structure of Interest Rates What Explains Differences in Interest Rates?
The Many Different Types of Debt Securities
Demand and Supply in the Secondary Market Affect Interest Rates
Supply in the Primary Market Affects Interest Rates
The Term Structure of Interest Rates
Data on the Term Structure of Interest Rates
How Investors Choose Between Short- and Long-Term Securities
The Notation Used in Describing Interest Rates
What Determines the Term Structure of Interest Rates in Equilibrium? Data Bank: How Accurate Are Expectations of Short-Term Interest Rates?
Equilibrium Interest Rates Under the Expectations Theory of the Term Structure
The Term Premium
The Increased Interest-Rate Risk of Long-Term Debt Securities How Do We Incorporate a Term Premium in Our Analysis?
Data Bank: The Term Premium When Short-Term Interest Rates Are Expected to Change
The Yield Curve and the Business Cycle
Policy Perspective: Can the Term Spread Help Predict Recessions?

Chapter 6: Real Interest Rates
What Are Real Interest Rates?
Why Inflation Risk Is a Problem for Investors
How Inflation-Indexed Securities Work
How Adjustable-Rate Mortgages Work
Real Present Value
What Affects Real Interest Rates?
Measuring Real Interest Rates
How Do Expected Real Interest Rates React to Changes in the Expected
Inflation Rate?
What Happens to Expected Real Interest Rates in a Recession?
Application to Everyday Life: How Inflation and Taxes Reduce Investors’
Returns

Chapter 7: Stocks and Other Assets
The Stock Market
Issuing and Investing in Stock
An Investor’s View of Stock Returns and Prices
Historical Returns and Stock Prices
Data Bank: The Explosion of Tech Stocks in the Late 1990’s and Their Implosion in the Early 2000s How Can an Investor Profit in the Stock Market?
The Efficient Markets Hypothesis and Stock-Price Movements Are Stock Prices Unpredictable?
Are Stock Returns Predictable Only Because of Risk? A Random Walk with a Crutch
What Determines Average Stock Prices and Returns?
Application to Everyday Life: Comparing Stocks with Bonds and Other Financial Investments
Comparing Stocks with Debt Securities: The Equity Premium Is the Equity Premium So High Because the United States is Lucky?
Other Assets as Investments
How Investors Can Diversify Their Portfolios

PART TWO: FUNDAMENTALS OF BANKING

Chapter 8: How Banks Work
The Role of Banks
Asymmetric-Information Problems Failures of the Banking System How Do Banks Earn Profits?
A Bank’s Balance Sheet
Reserve Accounting
Bank Profits
Those Pesky ATM Fees
Why Are Interest Rates on Credit Cards So High?
The Risks Banks Take
Policy Insider: Interest on Reserves

Chapter 9: Government’s Role in Banking
Regulation of Banks
Why Does the Government Regulate Banks?
Policy Insider: How Today’s Banking System Reflects Yesterday’s Regulations
How Does Government Regulation Achieve Its Goals?
Policy Insider: A History of Major Banking Regulations Do Banks Receive a Net Subsidy from the Government?
Supervision of Banks
Bank Supervisors
Deposit Insurance Rating Banks
Policy Insider: Should Mergers of Big Banks Be Allowed?
Evaluating Bank Mergers
The Merger of First Union and CoreStates
The Impact of Mergers on Bank Profits

PART THREE: MACROECONOMICS

Chapter 10: Economic Growth and Business Cycles
Measuring Economic Growth
A View of Economic Growth Based on Labor Data
Data Bank: Why is the Economy More Stable in the Long Boom?
A View of Economic Growth Using Data on Both Labor and Capital
Business Cycles
What Is a Business Cycle?
The Causes of Business Cycles
Data Bank: The Anxious Index
Application to Everyday Life: How Does Economic Growth Affect Your Future Income?

Chapter 11: Modeling Money
The ATM Model of the Demand for Cash
The Liquidity-Preference Model
The Dynamic Model of Money
The Effects of an Increase in Money Supply
The Effects of an Increase in the Growth Rate of the Money Supply
Policy Perspective: Using Models of Money Demand in Practice
Microeconomic Foundations of Money and the Friedman Rule
Policy Insider: Can the Federal Reserve Accurately Forecast in the Demand for Money?

Chapter 12: The Aggregate-Demand/Aggregate-Supply Model
A Model of Aggregate Demand and Aggregate Supply
Aggregate Demand
Data Bank: Is Consumer Confidence a Good Indicator of Future Consumer Spending?
Aggregate Supply
Putting Aggregate Demand and Aggregate Supply Together
From the Short Run to the Long Run
How Shifts in Exogenous Variables Affect Aggregate Demand and Aggregate Supply
An Example: A Drop in Business Optimism
Adjustment from the Short Run to the Long Run
Data Bank: Investment Shocks and the Business Cycle
Analyzing Policy Using the AD-AS Model
Monetary Policy
Effects of Fiscal Policy
Large, Structural Macroeconomic Models
Policy Perspective: Did Large Macro Models Mislead Policymakers in the 1970s?

Chapter 13: Modern Macroeconomic Models
Dynamic Models
A Two-Period Model of Consumption and Saving
General Equilibrium
Expectations
The Impact of Changes in Government Policy
Policy Insider: Tax Cuts and Consumer Spending
Dynamic, Stochastic, General-Equilibrium Models
Real Business-Cycle Models
Modern DSGE Models
Statistical Models of the Economy
Policy Insider: Do Modern Macroeconomic Models Have Any Value for Policy?
The New Neoclassical Synthesis

Chapter 14: Economic Interdependence
The International Business Cycle
Why Is There an International Business Cycle?
How Correlated Are the Business Cycles in Different Economies?
International Transmission of Shocks
Exchange Rates
Exchange Rates Matter for Prices of Goods
How Supply and Demand Determine Exchange Rates
How International Trade Affects the Exchange Rate
How Financial Investment Affects the Exchange Rate
How Exchange Rates Affect the Economy
How Savings Are Used
Data Bank: Productivity and Appreciation
The New Open-Economy Macroeconomics
Policy Perspective: How Independent Should a Country Be?

PART FOUR: MONETARY POLICY

Chapter 15: The Federal Reserve System
Federal Reserve Banks
Policy Insider: Why Power is Diffuse at the Fed
The Structure of a Federal Reserve Bank
Central Bank Functions Performed by Federal Reserve Banks
The Board of Governors
Policy Inside: William McChesney Martin and the Independence of the Fed
The Federal Open Market Committee
Open-Market Operations
The FOMC Directive
The FOMC Meeting
The “Books” of the FOMC

Includes Index : p. 417-432