15 questions about Money and Banking-No copy, use your own word, can not give the answer to someone else.-use the textbook, do not copy online
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THE ECONOMICS OF
MONEY, BANKING, AND
FINANCIAL MARKETS
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The Pearson Series in Economics
Abel/Bernanke/Croushore
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and Structure
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The Economics of the Environment
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Game Theory with Economic Applications
Blair/Rush
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Blanchard
Macroeconomics*
Boyer
Principles of Transportation Economics
Branson
Macroeconomic Theory and Policy
Hartwick/Olewiler
The Economics of Natural Resource Use
Heilbroner/Milberg
The Making of the Economic Society
Heyne/Boettke/Prychitko
The Economic Way of Thinking
Hubbard/O’Brien
Economics*
InEcon
Money, Banking, and the Financial System*
Hubbard/O’Brien/Rafferty
Macroeconomics*
Hughes/Cain
American Economic History
Bruce
Public Finance and the American Economy
Husted/Melvin
International Economics
Carlton/Perloff
Modern Industrial Organization
Jehle/Reny
Advanced Microeconomic Theory
Case/Fair/Oster
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Managerial Economics
Chapman
Environmental Economics: Theory,
Application, and Policy
Klein
Mathematical Methods for Economics
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International Monetary & Financial
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An Economic Theory of Democracy
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Fusfeld
The Age of the Economist
Gerber
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Gordon
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Laidler
The Demand for Money
Lynn
Economic Development: Theory and Practice
for a Divided World
Miller
Economics Today*
Miller/Benjamin
The Economics of Macro Issues
Miller/Benjamin/North
The Economics of Public Issues
Mishkin
The Economics of Money, Banking, and
Financial Markets*
The Economics of Money, Banking, and
Financial Markets, Business School Edition*
Macroeconomics: Policy and Practice*
Murray
Econometrics: A Modern Introduction
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Economics: Principles, Applications and
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Parkin
Economics*
Perloff
Microeconomics*
Microeconomics: Theory and Applications
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Macroeconomics
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THE ECONOMICS OF
MONEY, BANKING, AND
FINANCIAL MARKETS
Twelfth Edition
Frederic S. Mishkin
Columbia University
New York, NY
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ISBN 10: 0-13-473382-7
ISBN 13: 978-0-13-473382-1
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About the Author
Frederic S. Mishkin is the Alfred Lerner Professor of Banking and Financial
Institutions at the Graduate School of Business, Columbia University.
He is also a Research Associate at the National Bureau of Economic
Research, co-director of the U.S. Monetary Policy Forum, a member of
the Squam Lake Working Group on Financial Reform, and past president
of the Eastern Economics Association. Since receiving his Ph.D. from
the Massachusetts Institute of Technology in 1976, he has taught at the
University of Chicago, Northwestern University, Princeton University,
and Columbia. He has also received an honorary professorship from
the People’s (Renmin) University of China. From 1994 to 1997, he was
Executive Vice President and Director of Research at the Federal Reserve
Bank of New York and an associate economist of the Federal Open Market
Committee of the Federal Reserve System. From September 2006 to
August 2008, he was a member (governor) of the Board of Governors of
the Federal Reserve System.
Professor Mishkin’s research focuses on monetary policy and its impact on
financial markets and the aggregate economy. He is the author of more than
twenty books, including Macroeconomics: Policy and Practice, Second Edition
(Pearson, 2015); Financial Markets and Institutions, Ninth Edition (Pearson, 2018); Monetary
Policy Strategy (MIT Press, 2007); The Next Great Globalization: How Disadvantaged Nations
Can Harness Their Financial Systems to Get Rich (Princeton University Press, 2006); Inflation
Targeting: Lessons from the International Experience (Princeton University Press, 1999); Money,
Interest Rates, and Inflation (Edward Elgar, 1993); and A Rational Expectations Approach to
Macroeconometrics: Testing Policy Ineffectiveness and Efficient Markets Models (University of
Chicago Press, 1983). In addition, he has published more than 200 articles in such journals
as American Economic Review, Journal of Political Economy, Econometrica, Quarterly Journal of
Economics, Journal of Finance, and Journal of Monetary Economics.
Professor Mishkin has served on the editorial board of American Economic Review and
has been an associate editor at Journal of Business and Economic Statistics, Journal of Applied
Econometrics, Journal of Economic Perspectives, Journal of International Money and Finance, and
Journal of Money, Credit and Banking; he also served as the editor of the Federal Reserve Bank
of New York’s Economic Policy Review. He is currently an associate editor (member of the
editorial board) at six academic journals, including International Finance; Finance India; Review
of Development Finance; Borsa Economic Review; PSU Research Review and Emerging Markets, and
Finance and Trade. He has been a consultant to the Board of Governors of the Federal Reserve
System, the World Bank, and the International Monetary Fund, as well as to many central
banks throughout the world. He was also a member of the International Advisory Board to
the Financial Supervisory Service of South Korea and an advisor to the Institute for Monetary
and Economic Research at the Bank of Korea. Professor Mishkin was a Senior Fellow at the
Federal Deposit Insurance Corporation’s Center for Banking Research and was an academic
consultant to and serves on the Economic Advisory Panel and Monetary Advisory Panel of
the Federal Reserve Bank of New York.
vii
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Brief Contents
PART 1
Introduction
1
1 Why Study Money, Banking, and Financial Markets?……………………………………………..2
2 An Overview of the Financial System……………………………………………………………………. 22
3 What Is Money?……………………………………………………………………………………………………… 49
PART 2
Financial Markets
4
5
6
7
PART 3
An Economic Analysis of Financial Structure……………………………………………………… 164
Banking and the Management of Financial Institutions……………………………………. 188
Economic Analysis of Financial Regulation………………………………………………………… 217
Banking Industry: Structure and Competition……………………………………………………. 236
Financial Crises……………………………………………………………………………………………………… 268
Central Banking and the Conduct of Monetary Policy
13
14
15
16
PART 5
The Meaning of Interest Rates………………………………………………………………………………. 64
The Behavior of Interest Rates………………………………………………………………………………. 86
The Risk and Term Structure of Interest Rates……………………………………………………. 117
The Stock Market, the Theory of Rational Expectations, and the
Efficient Market Hypothesis…………………………………………………………………………………. 141
Financial Institutions 163
8
9
10
11
12
PART 4
63
293
Central Banks and the Federal Reserve System………………………………………………….. 294
The Money Supply Process………………………………………………………………………………….. 318
Tools of Monetary Policy……………………………………………………………………………………… 343
The Conduct of Monetary Policy: Strategy and Tactics……………………………………… 369
International Finance and Monetary Policy
403
17 The Foreign Exchange Market……………………………………………………………………………… 404
18 The International Financial System…………………………………………………………………….. 432
PART 6
Monetary Theory
19
20
21
22
23
24
25
461
Quantity Theory, Inflation, and the Demand for Money………………………………….. 462
The IS Curve………………………………………………………………………………………………………….. 480
The Monetary Policy and Aggregate Demand Curves………………………………………. 500
Aggregate Demand and Supply Analysis……………………………………………………………. 515
Monetary Policy Theory………………………………………………………………………………………. 559
The Role of Expectations in Monetary Policy…………………………………………………….. 588
Transmission Mechanisms of Monetary Policy………………………………………………….. 608
ix
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x
Brief Contents
Additional Chapters on MyLab Economics
1
2
3
4
5
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Financial Crises in Emerging Market Economies
The ISLM Model
Nonbank Finance
Financial Derivatives
Conflicts of Interest in the Financial Services Industry
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Contents in Detail
PART 1
Introduction
1
CHAPTER 1
Why Study Money, Banking, and Financial Markets? 2
Why Study Financial Markets?…………………………………………………………………………………………2
Debt Markets and Interest Rates…………………………………………………………………………………. 3
The Stock Market…………………………………………………………………………………………………….. 3
Why Study Financial Institutions and Banking?………………………………………………………………5
Structure of the Financial System……………………………………………………………………………….. 5
Banks and Other Financial Institutions………………………………………………………………………… 6
Financial Innovation………………………………………………………………………………………………… 6
Financial Crises……………………………………………………………………………………………………….. 6
Why Study Money and Monetary Policy?……………………………………………………………………….7
Money and Business Cycles……………………………………………………………………………………….. 7
Money and Inflation…………………………………………………………………………………………………. 7
Money and Interest Rates…………………………………………………………………………………………… 9
Conduct of Monetary Policy………………………………………………………………………………………. 9
Fiscal Policy and Monetary Policy……………………………………………………………………………… 10
Why Study International Finance?……………………………………………………………………………….. 11
The Foreign Exchange Market………………………………………………………………………………….. 12
The International Financial System……………………………………………………………………………. 13
Money, Banking, and Financial Markets and Your Career………………………………………….. 14
How We Will Study Money, Banking, and Financial Markets…………………………………….. 14
Exploring the Web…………………………………………………………………………………………………. 15
Collecting and Graphing Data………………………………………………………………………………….. 15
Web Exercises……………………………………………………………………………………………………….. 15
Concluding Remarks……………………………………………………………………………………………………… 15
Summary 15  •  Key Terms 16  •  Questions 16  •  Applied Problems 17  •  
Data Analysis Problems 17  •   Web Exercises 18  •   Web References 18
APPENDIX TO CHAPTER 1
Defining Aggregate Output, Income, the Price Level,
and the Inflation Rate 19
Aggregate Output …
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