M&B3

484 Pages·2014·35.113 MB·English

by  Dean Croushore

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S T U D E N T T E S T E D , F A C U L T Y A P P R O V E D
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M&B, 3e © 2015, 2012 Cengage Learning
Dean Croushore
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BRIEF CONTENTS
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CH1 Introduction to Money part part
and Banking 1
T WO FOUR

part
ONE Fundamentals of Banking 157 Monetary Policy 311
CH8 How Banks Work 158 CH15 The Federal Reserve
System 312
Money and the Financial
System 11
CH9 G overnment’s Role CH16 Monetary Control 332
CH2 T he Financial System and the
in Banking 178
Economy 12

part CH17 Monetary Policy: Goals
CH3 Money and Payments 37
and Tradeoffs 357
THREE
CH18 Rules for Monetary
CH4 Present Value 52
Policy 387
Macroeconomics 197
CH5 T he Structure of Interest CH10 Economic Growth
Rates 76 and Business Cycles 198
CH6 Real Interest Rates 109 CH11 Modeling Money 222
CH7 S tocks and Other CH12 The Aggregate-Demand/
Assets 134 Aggregate-Supply
Model 245
CH13 Modern Macroeconomic
Models 269
CH14 Economic
Interdependence 291
iii
Brief Contents
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CONTENTS
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CH1 I ntroduction to Money 1-2j You Can Predict How the Federal Reserve
and Banking 1
Will Change Interest Rates Using a Simple
1-1 What Is in This Text? 2 Equation 8
1-1a The Value of Money and Banking for Chapter Summary 10
Everyday Life 2
1-1b Why Is Government Policy So Crucial for
Money and Banking? 3
1-2 Ten (Surprising) Facts Concerning Money part
and Banking 4
ONE
1-2a Most Financial Formulas—No Matter
How Complicated They Look—Are Based
on the Compounding of Interest 4
Money and the Financial System
1-2b More U.S. Currency Is Held in Foreign
Countries than in the United States 5
1-2c Interest Rates on Long-Term Loans CH2 T he Financial System
Generally Are Higher than Interest Rates and the Economy 12
on Short-Term Loans 5 2-1 Financial Securities 14
1-2d To Understand How Interest Rates Affect 2-1a Debt and Equity 14
Economic Decisions, You Must Account 2-1b Differences Between Debt and Equity 14
for Expected Inflation 5 2-2 Matching Borrowers with Lenders 17
1-2e Buying Stocks Is the Best Way to Increase 2-2a Direct Versus Indirect Finance 17
Your Wealth—and the Worst 6 2-2b Financial Intermediaries 18
1-2f Banks and Other Financial Institutions 2-2c Functions of Financial Intermediaries 18
Made Major Errors That Led to the 2-3 Financial Markets 20
Financial Crisis of 2008 6 2-3a The Structure of Financial Markets 20
1-2g Recessions Are Difficult to Predict 7 2-3b How Financial Markets Determine Prices
1-2h The Federal Reserve Creates Money by of Securities 20
Changing a Number in Its Computer Calculating the Price of a Security 22
System 8 2-4 The Financial System 23
1-2i In the Long Run, the Only Economic 2-4a The Financial System and Economic
Variable the Federal Reserve Can Affect Growth 23
Is the Rate of Inflation—the Fed Has No 2-4b What Happens When the Financial System
Effect on Economic Activity 8 Works Poorly? 24
iv
Contents
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What do investors 4-2b The Present Value of a Perpetuity 58
to
everyday life care about? 26 4-2c The Present Value of a Fixed-Payment
2-4c Five Determinants of Investors’ Security 58
Decisions 26 4-2d The Present Value of a Coupon Bond 59
How to Calculate a Security’s Expected 4-2e The Present Value When Payments Occur
Return 28 More Often than Once Each Year 60
How to Calculate the Standard Deviation 4-3 Using Present Value to Make Decisions 62
of the Return to a Security 29 4-3a Comparing Alternative Offers 62
DataBank Default Risk on Debt 30 4-3b Buying or Leasing a Car 63
DataBank How Much Risk Do Investors Face 4-3c Interest-Rate Risk 64
from Inflation? 32 The Relationship Between the Market Interest
2-4d Choosing a Financial Investment Rate and the Price 65
Portfolio 34 4-4 Using the Present-Value Formula to Calculate
Review Questions and Problems 35 Payments 66
4-5 Looking Forward or Looking Backward
at Returns 67
4-5a One Payment in One Year 68
CH3 M oney
and Payments 37 4-5b One Payment More Than One Year in the
3-1 How We Use Money 38 Future 68
3-1a Medium of Exchange 38 4-5c Perpetuity 69
Gresham’s Law and Money in POW 4-5d Fixed-Payment Security 69
Camps 39 4-5e Coupon Bond 69
3-1b Unit of Account 39 4-5f Payments Made More Frequently Than
3-1c Store of Value 40 Once Each Year 70
3-1d Standard of Deferred Payment 41 Policy IN sider Annual Percentage Yield 70
3-2 The Payments System 41 to How to negotiate a
3-2a Outside Money 41 everyday life car lease 71
3-2b Inside Money 43 Review Questions and Problems 73
3-3 Counting Money 44 Appendix 4.A Deriving the Present-Value Formula
3-3a Measuring the Money Supply 44 for a Perpetuity 74
3-3b The Federal Reserve’s Monetary Appendix 4.B Deriving the Present-Value Formula
Aggregates 45 for a Fixed-Payment Security 75
3-3c The Case of the Missing Currency 47
What do you do with your
to
everyday life change? 49
Review Questions and Problems 51 CH5 T he Structure
of Interest Rates 76
5-1 What Explains Differences in Interest
Rates? 77
CH4 P resent
Value 52 5-1a The Many Different Types of Debt
Securities 77
4-1 The Present Value of One Future Payment 53
5-1b Demand and Supply in the Secondary
4-1a Investing, Borrowing, and
Market Affect Interest Rates 79
Compounding 53
5-1c Supply in the Primary Market Affects
4-1b Discounting 55
Interest Rates 81
4-2 The General Form of the Present-Value
Formula 57 5-2 The Term Structure of Interest Rates 84
4-2a Timelines to Describe Payment 5-2a Data on the Term Structure of Interest
Amounts 58 Rates 84
v
Contents
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5-2b How Investors Choose Between Short- and
CH7 S tocks and Other
Long-Term Securities 86
Assets 134
The Notation Used in Describing Interest
7-1 The Stock Market 135
Rates 87
7-1a Issuing and Investing in Stock 135
5-2c What Determines the Term Structure of
7-1b An Investor’s View of Stock Returns
Interest Rates in Equilibrium? 88
and Prices 136
DataBank How Accurate Are Expectations of
7-1c Historical Returns and Stock Prices 140
Short-Term Interest Rates? 89
DataBank The Explosion of Tech Stocks in the
Equilibrium Interest Rates Under the Expectations
Late 1990s and Their Implosion in the Early
Theory of the Term Structure 95
2000s 142
5-3 The Term Premium 96
7-2 How Can an Investor Profit in the
5-3a The Increased Interest-Rate Risk of Long-
Stock Market? 144
Term Debt Securities 96
7-2a The Efficient Markets Hypothesis and
5-3b How Do We Incorporate a Term Premium
Stock-Price Movements 144
in Our Analysis? 98
7-2b Are Stock Prices Unpredictable? 145
DataBank The Term Premium When Short-
7-2c Are Stock Returns Predictable Only
Term Interest Rates Are Not Expected to
Because of Risk? 145
Change 100
7-2d A Random Walk with a Crutch 147
5-4 The Yield Curve and the Business Cycle 101
7-2e What Determines Average Stock Prices and
Policy PERSPECTIVE Can the Term Spread Help Returns? 148
Predict Recessions? 104
Comparing stocks with bonds and
Review Questions and Problems 107 to
everyday life other financial investments 151
7-2f Comparing Stocks with Debt Securities:
The Equity Premium 152
Is the Equity Premium So High Because
CH6 R eal Interest
Rates 109 the United States Is Lucky? 153
7-2g Other Assets as Investments 153
6-1 What Are Real Interest Rates? 110
7-2h How Investors Can Diversify Their
6-1a The Impact of Unexpected Inflation on
Portfolios 154
Real Interest Rates 112
Review Questions and Problems 155
6-1b Why Inflation Risk Is
a Problem for Investors 113
6-1c How Inflation-Indexed part
Securities Work 114
TWO
How Adjustable-Rate Mortgages Work 115
6-2 Real Present Value 117
6-3 What Affects Real Interest Rates? 120
Fundamentals of Banking
6-3a Measuring Real Interest Rates 120
6-3b How Do Expected Real Interest Rates
React to Changes in the Expected Inflation
CH8 H ow Banks
Rate? 122 Work 158
6-3c What Happens to Expected Real Interest 8-1 The Role of Banks 159
Rates in a Recession? 124 8-1a Asymmetric-Information Problems 159
to How inflation and taxes reduce 8-1b Failures of the Banking System 161
everyday life investors’ returns 125 8-2 How Do Banks Earn Profits? 166
Review Questions and Problems 131 8-2a A Bank’s Balance Sheet 166
Appendix 6.A Deriving Equation (1) for the Expected 8-2b Reserve Accounting 168
Real Interest Rate 133 Those Pesky ATM Fees 170
vi
Contents
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8-2c Bank Profits 170 DataBank Why Is the Economy More Stable in
Why Are Interest Rates on Credit Cards So the Long Boom? 207
High? 171 10-1b A View of Economic Growth Using Data
8-2d The Risks Banks Take 172 on Both Labor and Capital 209
Policy PERSPECTIVES Interest on Reserves 174 10-2 Business Cycles 211
Review Questions and Problems 176 10-2a What Is a Business Cycle? 211
10-2b The Causes of Business Cycles 214
How does economic growth
to
CH9 G overnment’s Role everyday life affect your future income? 217
in Banking 178 DataBank The Anxious Index 218
9-1 Regulation of Banks 179 Review Questions and Problems 220
9-1a Why Does the Government Regulate
Banks? 179
Policy IN sider How Today’s Banking
CH 11 Modeling
System Reflects Yesterday’s Regulations 180
Money 222
9-1b How Does Government Regulation
11-1 The ATM Model of the Demand for Cash 223
Achieve Its Goals? 181
11-2 The Liquidity-Preference Model 229
Policy IN sider A History of Major Banking
11-3 The Dynamic Model of Money 234
Regulations 182
11-3a The Effects of an Increase in Money
9-1c Do Banks Receive a Net Subsidy from the
Supply 235
Government? 186
11-3b The Effects of an Increase in the Growth
9-2 Supervision of Banks 188
Rate of the Money Supply 237
9-2a Bank Supervisors 188
Policy PERSPECTIVE Using Models of Money
9-2b Deposit Insurance 190
Demand in Practice 239
9-2c Rating Banks 190
Policy IN sider Can the Federal Reserve
Policy PERSPECTIVES Should Mergers of Big Banks
Accurately Forecast the Demand for
Be Allowed? 192
Money? 241
9-2d Evaluating Bank Mergers 192
Microeconomic Foundations of Money and the
9-2e The Merger of Wachovia and Wells
Friedman Rule 242
Fargo 193
Review Questions and Problems 244
9-2f The Impact of Mergers on Bank
Profits 194
Review Questions and Problems 196
CH12 T he Aggregate-Demand/
Aggregate-Supply Model 245
12-1 A Model of Aggregate Demand and
part Aggregate Supply 246
12-1a Aggregate Demand 246
THREE
DataBank Is Consumer Confidence a Good
Indicator of Future Consumer Spending? 247
12-1b Aggregate Supply 250
Macroeconomics
12-1c Putting Aggregate Demand and
Aggregate Supply Together 252
CH10 E conomic Growth and 12-1d From the Short Run to the Long
Business Cycles 198 Run 253
10-1 Measuring Economic Growth 200 12-1e How Shifts in Exogenous Variables
10-1a A View of Economic Growth Based on Affect Aggregate Demand and Aggregate
Labor Data 201 Supply 254
vii
Contents
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