Name: Test Bank for Economics of Money Banking and Financial Markets 12th Edition by Mishkin
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ISBN-10 ‏ : ‎ 0134733827
ISBN-13 ‏ : ‎ 978-0134733821
Author: Frederic S. Mishkin

The Economics of Money, Banking and Financial Markets brings a fresh perspective to today’s major questions surrounding financial policy. Influenced by his term as Governor of the Federal Reserve, Frederic Mishkin offers students a unique viewpoint and informed insight into the monetary policy process, the regulation and supervision of the financial system, and the internationalization of financial markets. The 12th Edition provides a unifying, analytic framework for learning that fits a wide variety of syllabi. Core economic principles and real-world examples organize students’ thinking and keeps them motivated.

Table of Content:

Part 1 Introduction Crisis and Response: Global Financial Crisis and Its Aftermath
1 Why Study Money, Banking, and Financial Markets?
Preview
Learning Objectives
Why Study Financial Markets?
Debt Markets and Interest Rates
The Stock Market
Why Study Financial Institutions and Banking?
Structure of the Financial System
Banks and Other Financial Institutions
Financial Innovation
Financial Crises
Why Study Money and Monetary Policy?
Money and Business Cycles
Money and Inflation
Money and Interest Rates
Conduct of Monetary Policy
Fiscal Policy and Monetary Policy
Why Study International Finance?
The Foreign Exchange Market
The International Financial System
Money, Banking, and Financial Markets and Your Career
How We Will Study Money, Banking, and Financial Markets
Exploring the Web
Concluding Remarks
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Appendix to Chapter 1 Defining Aggregate Output, Income, the Price Level, and the Inflation Rate
Aggregate Output and Income
Real Versus Nominal Magnitudes
Aggregate Price Level
Growth Rates and the Inflation Rate
2 An Overview of the Financial System
Preview
Learning Objectives
Function of Financial Markets
Structure of Financial Markets
Debt and Equity Markets
Primary and Secondary Markets
Exchanges and Over-the-Counter Markets
Money and Capital Markets
Financial Market Instruments
Money Market Instruments
U.S. Treasury Bills
Negotiable Bank Certificates of Deposit
Commercial Paper
Repurchase Agreements
Federal (Fed) Funds
Capital Market Instruments
Stocks
Mortgages and Mortgage-Backed Securities
Corporate Bonds
U.S. Government Securities
U.S. Government Agency Securities
State and Local Government Bonds
Consumer and Bank Commercial Loans
Internationalization of Financial Markets
International Bond Market, Eurobonds, and Eurocurrencies
World Stock Markets
Function of Financial Intermediaries: Indirect Finance
Transaction Costs
Risk Sharing
Asymmetric Information: Adverse Selection and Moral Hazard
Economies of Scope and Conflicts of Interest
Types of Financial Intermediaries
Depository Institutions
Commercial Banks
Savings and Loan Associations (S&Ls) and Mutual Savings Banks
Credit Unions
Contractual Savings Institutions
Life Insurance Companies
Fire and Casualty Insurance Companies
Pension Funds and Government Retirement Funds
Investment Intermediaries
Finance Companies
Mutual Funds
Money Market Mutual Funds
Hedge Funds
Investment Banks
Regulation of the Financial System
Increasing Information Available to Investors
Ensuring the Soundness of Financial Intermediaries
Restrictions on Entry
Disclosure
Restrictions on Assets and Activities
Deposit Insurance
Limits on Competition
Restrictions on Interest Rates
Financial Regulation Abroad
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
3 What Is Money?
Preview
Learning Objectives
Meaning of Money
Functions of Money
Medium of Exchange
Unit of Account
Store of Value
Evolution of the Payments System
Commodity Money
Fiat Money
Checks
Electronic Payment
E-Money
Measuring Money
The Federal Reserve’s Monetary Aggregates
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Part 2 Financial Markets Crisis and Response: Credit Market Turmoil and the Stock Market Crash of October 2008
4 The Meaning of Interest Rates
Preview
Learning Objectives
Measuring Interest Rates
Present Value
Four Types of Credit Market Instruments
Yield to Maturity
Simple Loan
Fixed-Payment Loan
Coupon Bond
Discount Bond
Summary
The Distinction Between Interest Rates And Returns
Maturity and the Volatility of Bond Returns: Interest-Rate Risk
Summary
The Distinction Between Real And Nominal Interest Rates
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
5 The Behavior of Interest Rates
Preview
Learning Objectives
Determinants of Asset Demand
Wealth
Expected Returns
Risk
Liquidity
Theory of Portfolio Choice
Supply and Demand in the Bond Market
Demand Curve
Supply Curve
Market Equilibrium
Supply and Demand Analysis
Changes in Equilibrium Interest Rates
Shifts in the Demand for Bonds
Wealth
Expected Returns
Risk
Liquidity
Shifts in the Supply of Bonds
Expected Profitability of Investment Opportunities
Expected Inflation
Government Budget Deficits
Supply and Demand in the Market for Money: The Liquidity Preference Framework
Changes in Equilibrium Interest Rates in the Liquidity Preference Framework
Shifts in the Demand for Money
Income Effect
Price-Level Effect
Shifts in the Supply of Money
Money and Interest Rates
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
6 The Risk and Term Structure of Interest Rates
Preview
Learning Objectives
Risk Structure of Interest Rates
Default Risk
Liquidity
Income Tax Considerations
Summary
Term Structure of Interest Rates
Expectations Theory
Segmented Markets Theory
Liquidity Premium and Preferred Habitat Theories
Evidence on the Term Structure
Summary
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
7 The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis
Preview
Learning Objectives
Computing the Price of Common Stock
The One-Period Valuation Model
The Generalized Dividend Valuation Model
The Gordon Growth Model
How the Market Sets Stock Prices
The Theory of Rational Expectations
Formal Statement of the Theory
Rationale Behind the Theory
Implications of the Theory
The Efficient Market Hypothesis: Rational Expectations in Financial Markets
Rationale Behind the Hypothesis
Random-Walk Behavior of Stock Prices
Why the Efficient Market Hypothesis Does Not Imply That Financial Markets Are Efficient
Behavioral Finance
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Part 3 Financial Institutions Crisis and Response: The $700 Billion Bailout Package
8 An Economic Analysis of Financial Structure
Preview
Learning Objectives
Basic Facts About Financial Structure Throughout The World
Transaction Costs
How Transaction Costs Influence Financial Structure
How Financial Intermediaries Reduce Transaction Costs
Economies of Scale
Expertise
Asymmetric Information: Adverse Selection and Moral Hazard
The Lemons Problem: How Adverse Selection Influences Financial Structure
Lemons in the Stock and Bond Markets
Tools to Help Solve Adverse Selection Problems
Private Production and Sale of Information
Government Regulation to Increase Information
Financial Intermediation
Collateral and Net Worth
Summary
How Moral Hazard Affects the Choice Between Debt and Equity Contracts
Moral Hazard in Equity Contracts: The Principal–Agent Problem
Tools to Help Solve the Principal–Agent Problem
Production of Information: Monitoring
Government Regulation to Increase Information
Financial Intermediation
Debt Contracts
How Moral Hazard Influences Financial Structure in Debt Markets
Tools to Help Solve Moral Hazard in Debt Contracts
Net Worth and Collateral
Monitoring and Enforcement of Restrictive Covenants
Financial Intermediation
Summary
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
9 Banking and the Management of Financial Institutions
Preview
Learning Objectives
The Bank Balance Sheet
Liabilities
Checkable Deposits
Nontransaction Deposits
Borrowings
Bank Capital
Assets
Reserves
Cash Items in Process of Collection
Deposits at Other Banks
Securities
Loans
Other Assets
Basic Banking
General Principles of Bank Management
Liquidity Management and the Role of Reserves
Asset Management
Liability Management
Capital Adequacy Management
How Bank Capital Helps Prevent Bank Failure
How the Amount of Bank Capital Affects Returns to Equity Holders
Trade-Off Between Safety and Returns to Equity Holders
Bank Capital Requirements
Managing Credit Risk
Screening and Monitoring
Screening
Specialization in Lending
Monitoring and Enforcement of Restrictive Covenants
Long-Term Customer Relationships
Loan Commitments
Collateral and Compensating Balances
Credit Rationing
Managing Interest-Rate Risk
Gap and Duration Analysis
Off-Balance-Sheet Activities
Loan Sales
Generation of Fee Income
Trading Activities and Risk Management Techniques
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
10 Economic Analysis of Financial Regulation
Preview
Learning Objectives
Asymmetric Information as a Rationale for Financial Regulation
Government Safety Net
Bank Panics and the Need for Deposit Insurance
Other Forms of the Government Safety Net
Drawbacks of the Government Safety Net
Moral Hazard and the Government Safety Net
Adverse Selection and the Government Safety Net
“Too Big to Fail”
Financial Consolidation and the Government Safety Net
Types of Financial Regulation
Restrictions on Asset Holdings
Capital Requirements
Prompt Corrective Action
Financial Supervision: Chartering and Examination
Assessment of Risk Management
Disclosure Requirements
Consumer Protection
Restrictions on Competition
Summary
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercise
Web References
11 Banking Industry: Structure and Competition
Preview
Learning Objectives
Historical Development of the Banking System
Multiple Regulatory Agencies
Financial Innovation and the Growth of the “Shadow Banking System”
Responses to Changes in Demand Conditions: Interest-Rate Volatility
Adjustable-Rate Mortgages
Financial Derivatives
Responses to Changes in Supply Conditions: Information Technology
Bank Credit and Debit Cards
Electronic Banking
Junk Bonds
Commercial Paper Market
Securitization and the Shadow Banking System
How the Shadow Banking System Works
Subprime Mortgage Market
Avoidance of Existing Regulations
Money Market Mutual Funds
Sweep Accounts
Financial Innovation and the Decline of Traditional Banking
Decline in Cost Advantages in Acquiring Funds (Liabilities)
Decline in Income Advantages on Uses of Funds (Assets)
Banks’ Responses
Decline of Traditional Banking in Other Industrialized Countries
Structure of the U.S. Commercial Banking Industry
Restrictions on Branching
Response to Branching Restrictions
Bank Holding Companies
Automated Teller Machines
Bank Consolidation and Nationwide Banking
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
What Will the Structure of the U.S. Banking Industry Look Like in the Future?
Are Bank Consolidation and Nationwide Banking Good Things?
Separation of Banking and Other Financial Service Industries
Erosion of Glass-Steagall
The Gramm-Leach-Bliley Financial Services Modernization Act of 1999: Repeal of Glass-Steagall
Implications for Financial Consolidation
Separation of Banking and Other Financial Services Industries Throughout the World
Thrift Industry: Regulation and Structure
Savings and Loan Associations
Mutual Savings Banks
Credit Unions
International Banking
Eurodollar Market
Structure of U.S. Banking Overseas
Foreign Banks in the United States
Summary
Key Terms
Questions
Data Analysis Problems
Web Exercises
Web References
12 Financial Crises
Preview
Learning Objectives
What Is a Financial Crisis?
Dynamics of Financial Crises
Stage One: Initial Phase
Credit Boom and Bust
Asset-Price Boom and Bust
Increase in Uncertainty
Stage Two: Banking Crisis
Stage Three: Debt Deflation
The Global Financial Crisis of 2007–2009
Causes of the 2007–2009 Financial Crisis
Financial Innovation in the Mortgage Markets
Agency Problems in the Mortgage Markets
Asymmetric Information and Credit-Rating Agencies
Effects of the 2007–2009 Financial Crisis
Residential Housing Prices: Boom and Bust
Deterioration of Financial Institutions’ Balance Sheets
Run on the Shadow Banking System
Global Financial Markets
Failure of High-Profile Firms
Height of the 2007–2009 Financial Crisis
Government Intervention and the Recovery
Response of Financial Regulation
Macroprudential Versus Microprudential Supervision
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Consumer Protection
Annual Stress Tests
Resolution Authority
Limits on Federal Reserve Lending
Systemic Risk Regulation
Volcker Rule
Derivatives
Too-Big-to-Fail and Future Regulation
What Can Be Done About the Too-Big-to-Fail Problem?
Break Up Large, Systemically Important Financial Institutions
Higher Capital Requirements
Leave It to Dodd-Frank
Beyond Dodd-Frank: Where Might Regulation Head in the Future?
Consumer Protection
Resolution Authority
Volcker Rule
Derivatives Trading
Government-Sponsored Enterprises (GSEs)
Summary
Key Terms
Questions
Data Analysis Problems
Web Exercises
Web Reference
Part 4 Central Banking and the Conduct of Monetary Policy Crisis and Response: The Federal Reserve and the Global Financial Crisis
13 Central Banks and the Federal Reserve System
Preview
Learning Objectives
Origins of the Federal Reserve System
Structure of the Federal Reserve System
Federal Reserve Banks
Member Banks
Board of Governors of the Federal Reserve System
Federal Open Market Committee (FOMC)
Why the Chair of the Board of Governors Really Runs the Show
How Independent Is the Fed?
Should the Fed be Independent?
The Case for Independence
The Case Against Independence
Central Bank Independence and Macroeconomic Performance Throughout the World
Explaining Central Bank Behavior
Structure and Independence of the European Central Bank
Differences Between the European System of Central Banks and the Federal Reserve System
Governing Council
How Independent Is the ECB?
Structure and Independence of Other Foreign Central Banks
Bank of Canada
Bank of England
Bank of Japan
The Trend Toward Greater Independence
Summary
Key Terms
Questions
Data Analysis Problems
Web Exercises
Web References
14 The Money Supply Process
Preview
Learning Objectives
Three Players in the Money Supply Process
The Fed’s Balance Sheet
Liabilities
Assets
Control of the Monetary Base
Federal Reserve Open Market Operations
Open Market Purchase
Open Market Sale
Shifts from Deposits into Currency
Loans to Financial Institutions
Other Factors That Affect the Monetary Base
Overview of the Fed’s Ability to Control the Monetary Base
Multiple Deposit Creation: A Simple Model
Deposit Creation: The Single Bank
Deposit Creation: The Banking System
Deriving the Formula for Multiple Deposit Creation
Critique of the Simple Model
Factors That Determine the Money Supply
Changes in the Nonborrowed Monetary Base, MBn
Changes in Borrowed Reserves, BR, from the Fed
Changes in the Required Reserve Ratio, rr
Changes in Excess Reserves
Changes in Currency Holdings
Overview of the Money Supply Process
The Money Multiplier
Deriving the Money Multiplier
Intuition Behind the Money Multiplier
Money Supply Response to Changes in the Factors
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
15 Tools of Monetary Policy
Preview
Learning Objectives
The Market for Reserves and the Federal Funds Rate
Demand and Supply in the Market for Reserves
Demand Curve
Supply Curve
Market Equilibrium
How Changes in the Tools of Monetary Policy Affect the Federal Funds Rate
Open Market Operations
Discount Lending
Reserve Requirements
Interest on Reserves
Conventional Monetary Policy Tools
Open Market Operations
Discount Policy and the Lender of Last Resort
Operation of the Discount Window
Lender of Last Resort
Reserve Requirements
Interest on Reserves
Relative Advantages of the Different Tools
Nonconventional Monetary Policy Tools and Quantitative Easing
Liquidity Provision
Large-Scale Asset Purchases
Quantitative Easing Versus Credit Easing
Forward Guidance
Negative Interest Rates on Banks’ Deposits
Monetary Policy Tools of the European Central Bank
Open Market Operations
Lending to Banks
Interest on Reserves
Reserve Requirements
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
16 The Conduct of Monetary Policy: Strategy and Tactics
Preview
Learning Objectives
The Price Stability Goal and the Nominal Anchor
The Role of a Nominal Anchor
The Time-Inconsistency Problem
Other Goals of Monetary Policy
High Employment and Output Stability
Economic Growth
Stability of Financial Markets
Interest-Rate Stability
Stability in Foreign Exchange Markets
Should Price Stability Be the Primary Goal of Monetary Policy?
Hierarchical Versus Dual Mandates
Price Stability as the Primary, Long-Run Goal of Monetary Policy
Inflation Targeting
Inflation Targeting in New Zealand, Canada, and the United Kingdom
New Zealand
Canada
United Kingdom
Advantages of Inflation Targeting
Reduction of the Time-Inconsistency Problem
Increased Transparency
Increased Accountability
Consistency with Democratic Principles
Improved Performance
Disadvantages of Inflation Targeting
Delayed Signaling
Too Much Rigidity
Potential for Increased Output Fluctuations
Low Economic Growth
The Evolution of the Federal Reserve’s Monetary Policy Strategy
The Fed’s “Just Do It” Monetary Policy Strategy
The Long Road to Inflation Targeting
Lessons for Monetary Policy Strategy from the Global Financial Crisis
Implications for Inflation Targeting
Level of the Inflation Target
Flexibility of Inflation Targeting
Should Central Banks Try to Stop Asset-Price Bubbles?
Two Types of Asset-Price Bubbles
Credit-Driven Bubbles
Bubbles Driven Solely by Irrational Exuberance
The Debate over Whether Central Banks Should Try to Pop Bubbles
Con: Why Central Banks Should Not Try to Prick Asset-Price Bubbles but Should Just Clean Up After They Burst
Pro: Why Central Banks Should Try to Pop Bubbles
Macroprudential Policies
Monetary Policy
Tactics: Choosing the Policy Instrument
Criteria for Choosing the Policy Instrument
Observability and Measurability
Controllability
Predictable Effect on Goals
Tactics: The Taylor Rule
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Part 5 International Finance and Monetary Policy Crisis and Response: Foreign Exchange Market Turmoil and the IMF
17 The Foreign Exchange Market
Preview
Learning Objectives
Foreign Exchange Market
What Are Foreign Exchange Rates?
Why Are Exchange Rates Important?
How Is Foreign Exchange Traded?
Exchange Rates in the Long Run
Theory of Purchasing Power Parity
Evidence on Purchasing Power Parity
Why the Theory of Purchasing Power Parity Cannot Fully Explain Exchange Rates
PPP Does Not Hold Exactly, But It Has Predictive Power
Departures from PPP: Overvaluations and Undervaluations
Factors That Affect Exchange Rates in the Long Run
Relative Price Levels
Trade Barriers
Preferences for Domestic Versus Foreign Goods
Productivity
Exchange Rates in the Short Run: A Supply and Demand Analysis
Supply Curve for Domestic Assets
Demand Curve for Domestic Assets
Equilibrium in the Foreign Exchange Market
Explaining Changes in Exchange Rates
Shifts in the Demand for Domestic Assets
Domestic Interest Rate, iD
Foreign Interest Rate, iF
Changes in the Expected Future Exchange Rate,
Recap: Factors That Change the Exchange Rate
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Appendix to Chapter 17 The Interest Parity Condition
Comparing Expected Returns on Domestic and Foreign Assets
Interest Parity Condition
18 The International Financial System
Learning Objectives
Preview
Intervention in the Foreign Exchange Market
Foreign Exchange Intervention and the Money Supply
Unsterilized Intervention
Sterilized Intervention
Balance of Payments
Current Account
Financial Account
Exchange Rate Regimes in the International Financial System
Gold Standard
The Bretton Woods System
How a Fixed Exchange Rate Regime Works
Devaluation and Revaluation
Perfect Capital Mobility
Speculative Attacks
The Policy Trilemma
Monetary Unions
Managed Float
Capital Controls
Controls on Capital Outflows
Controls on Capital Inflows
The Role of the IMF
Should the IMF Act as an International Lender of Last Resort?
International Considerations and Monetary Policy
Direct Effects of the Foreign Exchange Market on Monetary Policy
Exchange Rate Considerations
To Peg or Not to Peg: Exchange-Rate Targeting as an Alternative Monetary Policy Strategy
Advantages of Exchange-Rate Targeting
Disadvantages of Exchange-Rate Targeting
When Is Exchange-Rate Targeting Desirable for Industrialized Countries?
When Is Exchange-Rate Targeting Desirable for Emerging Market Countries?
Currency Boards
Dollarization
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Part 6 Monetary Theory Crisis and Response: The Perfect Storm of 2007–2009
19 Quantity Theory, Inflation, and the Demand for Money
Preview
Learning Objectives
Quantity Theory of Money
Velocity of Money and Equation of Exchange
Determinants of Velocity
Demand for Money
From the Equation of Exchange to the Quantity Theory of Money
Quantity Theory and the Price Level
Quantity Theory and Inflation
Budget Deficits and Inflation
Government Budget Constraint
Hyperinflation
Keynesian Theories of Money Demand
Transactions Motive
Precautionary Motive
Speculative Motive
Putting the Three Motives Together
Portfolio Theories of Money Demand
Theory of Portfolio Choice and Keynesian Liquidity Preference
Other Factors That Affect the Demand for Money
Wealth
Risk
Liquidity of Other Assets
Summary
Empirical Evidence for the Demand for Money
Interest Rates and Money Demand
Stability of Money Demand
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
20 The IS Curve
Preview
Learning Objectives
Planned Expenditure and Aggregate Demand
The Components of Aggregate Demand
Consumption Expenditure
Consumption Function
Planned Investment Spending
Fixed Investment
Inventory Investment
Planned Investment Spending and Real Interest Rates
Planned Investment and Business Expectations
Investment Function
Government Purchases and Taxes
Government Purchases
Taxes
Net Exports
Real Interest Rates and Net Exports
Autonomous Net Exports
Net Export Function
Goods Market Equilibrium
Solving for Goods Market Equilibrium
Deriving the IS Curve
Understanding the IS Curve
What the IS Curve Tells Us: Intuition
What the IS Curve Tells Us: Numerical Example
Why the Economy Heads Toward Equilibrium
Factors That Shift the IS Curve
Changes in Government Purchases
Changes in Taxes
Changes in Autonomous Spending
Autonomous Consumption
Autonomous Investment Spending
Autonomous Net Exports
Changes in Financial Frictions
Summary of Factors That Shift the IS Curve
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
21 The Monetary Policy and Aggregate Demand Curves
Preview
Learning Objectives
The Federal Reserve and Monetary Policy
The Monetary Policy Curve
The Taylor Principle: Why the Monetary Policy Curve Has an Upward Slope
Shifts in the MP Curve
Movements Along Versus Shifts in the MP Curve
The Aggregate Demand Curve
Deriving the Aggregate Demand Curve Graphically
Factors That Shift the Aggregate Demand Curve
Shifts in the IS Curve
Shifts in the MP Curve
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
22 Aggregate Demand and Supply Analysis
Preview
Learning Objectives
Aggregate Demand
Deriving the Aggregate Demand Curve
Factors That Shift the Aggregate Demand Curve
Aggregate Supply
Long-Run Aggregate Supply Curve
Short-Run Aggregate Supply Curve
Expected Inflation, πe
Output Gap
Inflation (Supply) Shocks
Short-Run Aggregate Supply Curve
Why the Short-Run Aggregate Supply Curve Is Upward-Sloping
Price Stickiness and the Short-Run Aggregate Supply Curve
Shifts in the Aggregate Supply Curves
Shifts in the Long-Run Aggregate Supply Curve
Shifts in the Short-Run Aggregate Supply Curve
Expected Inflation
Inflation Shock
Persistent Output Gap
Equilibrium in Aggregate Demand and Supply Analysis
Short-Run Equilibrium
How the Short-Run Equilibrium Moves to the Long-Run Equilibrium over Time
Self-Correcting Mechanism
Changes in Equilibrium: Aggregate Demand Shocks
Changes in Equilibrium: Aggregate Supply (INFLATION) Shocks
Temporary Supply Shocks
Permanent Supply Shocks and Real Business Cycle Theory
Conclusions
AD/AS Analysis of Foreign Business Cycle Episodes
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Appendix to Chapter 22 The Phillips Curve and the Short-Run Aggregate Supply Curve
The Phillips Curve
Phillips Curve Analysis in the 1960s
The Friedman-Phelps Phillips Curve Analysis
The Phillips Curve After the 1960s
The Modern Phillips Curve
The Modern Phillips Curve with Adaptive (Backward-Looking) Expectations
The Short-Run Aggregate Supply Curve
23 Monetary Policy Theory
Preview
Learning Objectives
Response of Monetary Policy to Shocks
Response to an Aggregate Demand Shock
No Policy Response
Policy Stabilizes Economic Activity and Inflation in the Short Run
Response to a Permanent Supply Shock
No Policy Response
Policy Stabilizes Inflation
Response to a Temporary Supply Shock
No Policy Response
Policy Stabilizes Inflation in the Short Run
Policy Stabilizes Economic Activity in the Short Run
The Bottom Line: The Relationship Between Stabilizing Inflation and Stabilizing Economic Activity
How Actively Should Policymakers Try to Stabilize Economic Activity?
Lags and Policy Implementation
Inflation: Always and Everywhere a Monetary Phenomenon
Causes of Inflationary Monetary Policy
High Employment Targets and Inflation
Cost-Push Inflation
Demand-Pull Inflation
Cost-Push Versus Demand-Pull Inflation
Monetary Policy at the Zero Lower Bound
Deriving the Aggregate Demand Curve with the Zero Lower Bound
The Disappearance of the Self-Correcting Mechanism at the Zero Lower Bound
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web Reference
24 The Role of Expectations in Monetary Policy
Preview
Learning Objectives
Lucas Critique of Policy Evaluation
Econometric Policy Evaluation
Policy Conduct: Rules or Discretion?
Discretion and the Time-Inconsistency Problem
Types of Rules
The Case for Rules
The Case for Discretion
Constrained Discretion
The Role of Credibility and a Nominal Anchor
Benefits of a Credible Nominal Anchor
Credibility and Aggregate Demand Shocks
Positive Demand Shock
Negative Demand Shock
Credibility and Aggregate Supply Shocks
Credibility and Anti-Inflation Policy
Approaches to Establishing Central Bank Credibility
Nominal GDP Targeting
Appoint “Conservative” Central Bankers
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
25 Transmission Mechanisms of Monetary Policy
Learning Objectives
Preview
Transmission Mechanisms of Monetary Policy
Traditional Interest-Rate Channels
Other Asset Price Channels
Exchange Rate Effects on Net Exports
Tobin’s q Theory
Wealth Effects
Credit View
Bank Lending Channel
Balance Sheet Channel
Cash Flow Channel
Unanticipated Price Level Channel
Household Liquidity Effects
Why Are Credit Channels Likely to Be Important?
Lessons for Monetary Policy
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Glossary
Index