Applying Theory to the Real World: Applications and Boxes

Title Page

Copyright

Dedication

About the Author

Brief Contents

Contents in Detail

Additional Contents on MyLab Economics

Preface

Part 1: Introduction

Chapter 1: Why Study Money, Banking, and Financial Markets?

1.1 Why Study Financial Markets?

Debt Markets and Interest Rates

The Stock Market

1.2 Why Study Financial Institutions and Banking?

Structure of the Financial System

Banks and Other Financial Institutions

Financial Innovation

Financial Crises

1.3 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

1.4 Why Study International Finance?

The Foreign Exchange Market

The International Financial System

1.5 Money, Banking, and Financial Markets and Your Career

1.6 How We Will Study Money, Banking, and Financial Markets

Concluding Remarks

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

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

Chapter 2: An Overview of the Financial System

2.1 Function of Financial Markets

2.2 Structure of Financial Markets

Debt and Equity Markets

Primary and Secondary Markets

Exchanges and Over-the-Counter Markets

Money and Capital Markets

2.3 Financial Market Instruments

Money Market Instruments

Following the Financial News Money Market Rates

Capital Market Instruments

Following the Financial News Capital Market Interest Rates

2.4 Internationalization of Financial Markets

Global Are U.S. Capital Markets Losing Their Edge?

International Bond Market, Eurobonds, and Eurocurrencies

World Stock Markets

2.5 Function of Financial Intermediaries: Indirect Finance

Following the Financial News Foreign Stock Market Indexes

Transaction Costs

Global The Importance of Financial Intermediaries Relative to Securities Markets: An International C

Risk Sharing

Asymmetric Information: Adverse Selection and Moral Hazard

Economies of Scope and Conflicts of Interest

2.6 Types of Financial Intermediaries

Depository Institutions

Contractual Savings Institutions

Investment Intermediaries

2.7 Regulation of the Financial System

Increasing Information Available to Investors

Ensuring the Soundness of Financial Intermediaries

Financial Regulation Abroad

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Chapter 3: What Is Money?

3.1 Meaning of Money

3.2 Functions of Money

Medium of Exchange

Unit of Account

Store of Value

3.3 Evolution of the Payments System

Commodity Money

Fiat Money

Checks

Electronic Payment

E-Money

FYI Are We Headed for a Cashless Society?

Application Will Bitcoin or Other Cryptocurrencies Become the Money of the Future?

3.4 Measuring Money

The Federal Reserve’s Monetary Aggregates

Following the Financial News The Monetary Aggregates

FYI Where Are All the U.S. Dollars?

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Part 2: Financial Markets

Chapter 4: The Meaning of Interest Rates

4.1 Measuring Interest Rates

Present Value

Application Simple Present Value

Application How Much Is That Jackpot Worth?

Four Types of Credit Market Instruments

Yield to Maturity

Application Yield to Maturity on a Simple Loan

Application Yield to Maturity and the Yearly Payment on a Fixed-Payment Loan

Application Yield to Maturity and Bond Price for a Coupon Bond

Application Yield to Maturity on a Perpetuity

Application Yield to Maturity on a Discount Bond

4.2 The Distinction Between Interest Rates and Returns

Global Negative Interest Rates? Japan First, Then the United States, Then Europe

Maturity and the Volatility of Bond Returns: Interest-Rate Risk

Summary

4.3 The Distinction Between Real and Nominal Interest Rates

Application Calculating Real Interest Rates

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Chapter 5: The Behavior of Interest Rates

5.1 Determinants of Asset Demand

Wealth

Expected Returns

Risk

Liquidity

Theory of Portfolio Choice

5.2 Supply and Demand in the Bond Market

Demand Curve

Supply Curve

Market Equilibrium

Supply and Demand Analysis

5.3 Changes in Equilibrium Interest Rates

Shifts in the Demand for Bonds

Shifts in the Supply of Bonds

Application Changes in the Interest Rate Due to a Change in Expected Inflation: The Fisher Effect

Application Changes in the Interest Rate Due to a Business Cycle Expansion

Application Explaining Current Low Interest Rates in Europe, Japan, and the United States: Low Infla

5.4 Supply and Demand in the Market for Money: The Liquidity Preference Framework

5.5 Changes in Equilibrium Interest Rates in the Liquidity Preference Framework

Shifts in the Demand for Money

Shifts in the Supply of Money

Application Changes in the Equilibrium Interest Rate Due to Changes in Income, the Price Level, or t

Changes in Income

Changes in the Price Level

Changes in the Money Supply

5.6 Money and Interest Rates

Application Does a Higher Rate of Growth of the Money Supply Lower Interest Rates?

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Chapter 6: The Risk and Term Structure of Interest Rates

6.1 Risk Structure of Interest Rates

Default Risk

FYI Conflicts of Interest at Credit-Rating Agencies and the Global Financial Crisis

Application The Coronavirus Pandemic and the Baa–Treasury Spread

Liquidity

Income Tax Considerations

Summary

Application Effects of the Trump Tax Cuts on Bond Interest Rates

6.2 Term Structure of Interest Rates

Following the Financial News Yield Curves

Expectations Theory

Segmented Markets Theory

Liquidity Premium and Preferred Habitat Theories

Evidence on the Term Structure

FYI The Yield Curve as a Forecasting Tool for Inflation and the Business Cycle

Summary

Application Interpreting Yield Curves, 1980–2020

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Chapter 7: The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesi

7.1 Computing the Price of Common Stock

The One-Period Valuation Model

The Generalized Dividend Valuation Model

The Gordon Growth Model

7.2 How the Market Sets Stock Prices

Application Monetary Policy and Stock Prices

Application The Coronavirus Stock Market Crash of 2020

7.3 The Theory of Rational Expectations

Formal Statement of the Theory

Rationale Behind the Theory

Implications of the Theory

7.4 The Efficient Market Hypothesis: Rational Expectations in Financial Markets

Rationale Behind the Hypothesis

Random-Walk Behavior of Stock Prices

Global Should Foreign Exchange Rates Follow a Random Walk?

Application Practical Guide to Investing in the Stock Market

How Valuable Are Reports Published by Investment Advisers?

Should You Be Skeptical of Hot Tips?

FYI Should You Hire an Ape as Your Investment Adviser?

Do Stock Prices Always Rise When There Is Good News?

Efficient Market Prescription for the Investor

7.5 Why the Efficient Market Hypothesis Does Not Imply That Financial Markets Are Efficient

Application What Do Stock Market Crashes Tell Us About the Efficient Market Hypothesis and the Effic

7.6 Behavioral Finance

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Part 3: Financial Institutions

Chapter 8: An Economic Analysis of Financial Structure

8.1 Basic Facts About Financial Structure Throughout The World

8.2 Transaction Costs

How Transaction Costs Influence Financial Structure

How Financial Intermediaries Reduce Transaction Costs

8.3 Asymmetric Information: Adverse Selection and Moral Hazard

8.4 The Lemons Problem: How Adverse Selection Influences Financial Structure

Lemons in the Stock and Bond Markets

Tools to Help Solve Adverse Selection Problems

FYI The Enron Implosion

8.5 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

8.6 How Moral Hazard Influences Financial Structure in Debt Markets

Tools to Help Solve Moral Hazard in Debt Contracts

Summary

Application Financial Development and Economic Growth

FYI The Tyranny of Collateral

Application Is China a Counterexample to the Importance of Financial Development?

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Chapter 9: Banking and the Management of Financial Institutions

9.1 The Bank Balance Sheet

Liabilities

Assets

9.2 Basic Banking

9.3 General Principles of Bank Management

Liquidity Management and the Role of Reserves

Asset Management

Liability Management

Capital Adequacy Management

Application Strategies for Managing Bank Capital

Application How a Capital Crunch Caused a Credit Crunch During the Global Financial Crisis

9.4 Managing Credit Risk

Screening and Monitoring

Long-Term Customer Relationships

Loan Commitments

Collateral and Compensating Balances

Credit Rationing

9.5 Managing Interest-Rate Risk

Gap and Duration Analysis

Application Strategies for Managing Interest-Rate Risk

9.6 Off-Balance-Sheet Activities

Loan Sales

Generation of Fee Income

Trading Activities and Risk Management Techniques

Global Barings, Daiwa, Sumitomo, Société Générale, and JP Morgan Chase: Rogue Traders and the Pr

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problem

Chapter 10: Economic Analysis of Financial Regulation

10.1 Asymmetric Information as a Rationale for Financial Regulation

Government Safety Net

Global The Spread of Government Deposit Insurance Throughout the World: Is This a Good Thing?

Drawbacks of the Government Safety Net

10.2 Types of Financial Regulation

Restrictions on Asset Holdings

Capital Requirements

Global Where Is the Basel Accord Heading After the Global Financial Crisis?

Prompt Corrective Action

Financial Supervision: Chartering and Examination

Assessment of Risk Management

Disclosure Requirements

Consumer Protection

Restrictions on Competition

Summary

Global International Financial Regulation

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Chapter 11: Banking Industry: Structure and Competition

11.1 Historical Development of the Banking System

Multiple Regulatory Agencies

11.2 Financial Innovation and the Growth of the “Shadow Banking System”

Responses to Changes in Demand Conditions: Interest-Rate Volatility

Responses to Changes in Supply Conditions: Information Technology

Securitization and the Shadow Banking System

Avoidance of Existing Regulations

FYI Bruce Bent and the Money Market Mutual Fund Panic of 2008

Financial Innovation and the Decline of Traditional Banking

11.3 Structure of the U.S. Commercial Banking Industry

Restrictions on Branching

Response to Branching Restrictions

11.4 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?

Global Comparison of Banking Structure in the United States and Abroad

Are Bank Consolidation and Nationwide Banking Good Things?

11.5 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

FYI The Global Financial Crisis and the Demise of Large, Free-Standing Investment Banks

11.6 Thrift Industry: Regulation and Structure

Savings and Loan Associations

Mutual Savings Banks

Credit Unions

11.7 International Banking

Eurodollar Market

Global Ironic Birth of the Eurodollar Market

Structure of U.S. Banking Overseas

Foreign Banks in the United States

Summary

Key Terms

Questions

Data Analysis Problems

Chapter 12: Financial Crises in Advanced Economies

Global The European Sovereign Debt Crisis

12.1 What is a Financial Crisis?

12.2 Dynamics of Financial Crises

Stage One: Initial Phase

Stage Two: Banking Crisis

Stage Three: Debt Deflation

Application The Mother of All Financial Crises: The Great Depression

The U.S. Stock Market Crash

Worldwide Decline in Asset Prices

Bank Failures

Economic Contraction and Debt Deflation

12.3 The Global Financial Crisis of 2007–2009

Causes of the 2007–2009 Financial Crisis

FYI Collateralized Debt Obligations (CDOs) and Credit Default Swaps

Effects of the 2007–2009 Financial Crisis

Inside the Fed Was the Fed to Blame for the Housing Price Bubble?

Height of the 2007–2009 Financial Crisis

Application Could the Coronavirus Pandemic Have Led to a Financial Crisis?

12.4 Government Intervention and the Recovery

Short-Term Responses and Recovery

Global Latvia’s Different and Controversial Response: Expansionary Contraction

12.5 Stabilizing the Global Financial System: Long-Term Responses

Global Financial Regulatory Framework

Policy Areas at the National Level

FYI The LIBOR Scandal

12.6 Future Regulations and Policy Areas at the International Level

Bilateral and Multilateral Supervisory Cooperation

Collective Supervisory Cooperation

Collectively Coordinated Macroeconomic Stability Plans

Self-Discipline

Summary

Key Terms

Questions

Data Analysis Problems

Chapter 13: Financial Crises in Emerging Market Economies

13.1 Dynamics of Financial Crises in Emerging Market Economies

Stage One: Initial Phase

Stage Two: Currency Crises

Stage Three: Full-Fledged Financial Crisis

Application Crisis in South Korea, 1997–1998

Financial Liberalization and Globalization Mismanaged

Perversion of the Financial Liberalization and Globalization Process: Chaebols and the South Korean

Stock Market Decline and Failure of Firms Increase Uncertainty

Adverse Selection and Moral Hazard Problems Worsen and the Economy Contracts

Currency Crisis Ensues

Final Stage: Currency Crisis Triggers Full-Fledged Financial Crisis

Recovery Commences

Global China and the “Noncrisis” in 1997–1998

Application The Argentine Financial Crisis, 2001–2002

Severe Fiscal Imbalances

Adverse Selection and Moral Hazard Problems Worsen

Bank Panic Begins

Currency Crisis Ensues

Currency Crisis Triggers Full-Fledged Financial Crisis

Recovery Begins

Global When an Advanced Economy Is Like an Emerging Market Economy: The Icelandic Financial Crisis o

13.2 Preventing Emerging Market Financial Crises

Beef Up Prudential Regulation and Supervision of Banks

Encourage Disclosure and Market-Based Discipline

Limit Currency Mismatch

Sequence Financial Liberalization

Summary

Key Terms

Questions

Data Analysis Problems

Part 4: Central Banking and the Conduct of Monetary Policy

Chapter 14: Central Banks

14.1 Origins of the Central Banking System

Global Who Should Own Central Banks?

14.2 Variations in the Functions and Structures of Central Banks

The European Central Bank, the Euro System, and the European System of Central Banks

Decision-making Bodies of the ECB

How Monetary Policy Is Conducted within the ECB

Global The Importance of the Bundesbank within the ECB

Global Are Non-Euro Central Banks Constrained by Membership of the EU?

The Federal Reserve System

Difference between the ECB and the Fed

The Bank of England

Global Brexit and the BoE

14.3 Structure of Central Banks of Larger Economies

The Bank of Canada

The Bank of Japan

The People’s Bank of China

14.4 Structure and Independence of Central Banks of Emerging Market Economies

14.5 Central Banks Independence

The Case for Independence

The Case against Independence

The Trend toward Greater Independence

Summary

Key Terms

Questions

Data Analysis Problems

Chapter 15: The Money Supply Process

15.1 Three Players in the Money Supply Process

15.2 The Fed’s Balance Sheet

Liabilities

Assets

15.3 Control of the Monetary Base

Federal Reserve Open Market Operations

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

15.4 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

15.5 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

15.6 Overview of the Money Supply Process

15.7 The Money Multiplier

Deriving the Money Multiplier

Intuition Behind the Money Multiplier

Money Supply Response to Changes in the Factors

Application Quantitative Easing and the Money Supply During the Global Financial and the Coronavirus

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Chapter 16: Tools of Monetary Policy

16.1 The Market for Reserves and the Federal Funds Rate

Demand and Supply in the Market for Reserves

How Changes in the Tools of Monetary Policy Affect the Federal Funds Rate

Application How the Federal Reserve’s Operating Procedures Limit Fluctuations in the Federal Funds

16.2 Conventional Monetary Policy Tools

Open Market Operations

Inside the Fed A Day at the Trading Desk

Discount Policy and the Lender of Last Resort

Inside the Fed Using Discount Policy to Prevent a Financial Panic

Reserve Requirements

Interest on Excess Reserves

16.3 Nonconventional Monetary Policy Tools and Quantitative Easing in the Wake of the Global Financi

Liquidity Provision

Large-Scale Asset Purchases

Inside the Fed Fed Lending Facilities During the Global Financial and Coronavirus Crises

Quantitative Easing Versus Credit Easing

Forward Guidance

Negative Interest Rates on Banks’ Deposits

16.4 Monetary Policy Tools of the European Central Bank

Open Market Operations

Lending to Banks

Interest on Excess Reserves

Reserve Requirements

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Chapter 17: The Conduct of Monetary Policy: Strategy and Tactics

17.1 The Price Stability Goal and the Nominal Anchor

The Role of a Nominal Anchor

The Time-Inconsistency Problem

17.2 Other Goals of Monetary Policy

High Employment and Output Stability

Economic Growth

Stability of Financial Markets

Interest-Rate Stability

Stability in Foreign Exchange Markets

17.3 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

17.4 Inflation Targeting

Inflation Targeting in New Zealand, Canada, and the United Kingdom

Advantages of Inflation Targeting

Disadvantages of Inflation Targeting

17.5 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

Inside the Fed Ben Bernanke’s Advocacy of Inflation Targeting

Global The European Central Bank’s Monetary Policy Strategy

17.6 Lessons for Monetary Policy Strategy from the Global Financial Crisis

Implications for Inflation Targeting

Inside the Fed The Fed’s New Monetary Policy Strategy: Average Inflation Targeting

17.7 Should Central Banks Try to Stop Asset-Price Bubbles?

Two Types of Asset-Price Bubbles

The Debate over Whether Central Banks Should Try to Pop Bubbles

17.8 Tactics: Choosing the Policy Instrument

Criteria for Choosing the Policy Instrument

17.9 Tactics: The Taylor Rule

Inside the Fed The Fed’s Use of the Taylor Rule

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Part 5: International Finance and Monetary Policy

Chapter 18: The Foreign Exchange Market

18.1 Foreign Exchange Market

Following the Financial News Foreign Exchange Rates

What Are Foreign Exchange Rates?

Why Are Exchange Rates Important?

How Is Foreign Exchange Traded?

18.2 Exchange Rates in the Long Run

Theory of Purchasing Power Parity

Application Burgernomics: Big Macs and PPP

Factors That Affect Exchange Rates in the Long Run

18.3 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

18.4 Explaining Changes in Exchange Rates

Shifts in the Demand for Domestic Assets

Recap: Factors That Change the Exchange Rate

Application Effects of Changes in Interest Rates on the Equilibrium Exchange Rate

Application The Global Financial Crisis and the Dollar

Application Brexit and the British Pound

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Chapter 19: The International Financial System

19.1 Intervention in the Foreign Exchange Market

Foreign Exchange Intervention and the Money Supply

Global Variation in Central Banks’ Activism and Method of Intervention on Foreign Exchange Markets

Unsterilized Intervention

Sterilized Intervention

19.2 Balance of Payments

Current Account

Financial Account

Global Should We Worry About the Large and Recurrent Trade Deficit?

19.3 Exchange Rate Regimes in the International Financial System

Gold Standard

The Bretton Woods System

How a Fixed Exchange Rate Regime Works

Speculative Attacks

Application The Foreign Exchange Crisis of September 1992

The Policy Trilemma

Application How Did China Accumulate $4 Trillion of International Reserves?

Monetary Unions

Managed Float

Global Will the Euro Survive?

19.4 Capital Controls

Controls on Capital Outflows

Controls on Capital Inflows

19.5 The Role of the IMF

Should the IMF Act as an International Lender of Last Resort?

19.6 International Considerations and Monetary Policy

Direct Effects of the Foreign Exchange Market on Monetary Policy

Exchange Rate Considerations

19.7 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

Global Argentina’s Currency Board

Dollarization

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Part 6: Monetary Theory

Chapter 20: Quantity Theory, Inflation, and the Demand for Money

20.1 Quantity Theory of Money

Velocity of Money and Equation of Exchange

From the Equation of Exchange to the Quantity Theory of Money

Quantity Theory and the Price Level

Quantity Theory and Inflation

Application Testing the Quantity Theory of Money

20.2 Budget Deficits and Inflation

Government Budget Constraint

FYI Modern Monetary Theory

Hyperinflation

Application The Zimbabwean Hyperinflation

20.3 Keynesian Theories of Money Demand

Transactions Motive

Precautionary Motive

Speculative Motive

Putting the Three Motives Together

20.4 Portfolio Theories of Money Demand

Theory of Portfolio Choice and Keynesian Liquidity Preference

Other Factors That Affect the Demand for Money

Summary

20.5 Empirical Evidence on the Demand for Money

Interest Rates and Money Demand

Stability of Money Demand

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Chapter 21: The IS Curve

21.1 Planned Expenditure and Aggregate Demand

21.2 The Components of Aggregate Demand

Consumption Expenditure

FYI Meaning of the Word Investment

Planned Investment Spending

Government Purchases and Taxes

Net Exports

21.3 Goods Market Equilibrium

Solving for Goods Market Equilibrium

Deriving the IS Curve

21.4 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

21.5 Factors that Shift the IS Curve

Changes in Government Purchases

Application The Vietnam War Buildup, 1964–1969

Changes in Taxes

Application The Fiscal Stimulus Package of 2009

Changes in Autonomous Spending

Changes in Financial Frictions

Summary of Factors That Shift the IS Curve

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Chapter 22: The Monetary Policy and Aggregate Demand Curves

22.1 The Federal Reserve and Monetary Policy

22.2 The Monetary Policy Curve

Why the Monetary Policy Curve Has an Upward Slope

Shifts in the MP Curve

Movements Along Versus Shifts in the MP Curve

Application Movements Along the MP Curve: The Rise in the Federal Funds Rate Target, 2004–2006 and

Application Shift in the MP Curve: Autonomous Monetary Easing During the Global Financial and Corona

22.3 The Aggregate Demand Curve

Deriving the Aggregate Demand Curve Graphically

FYI Deriving the Aggregate Demand Curve Algebraically

Factors That Shift the Aggregate Demand Curve

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Chapter 23: Aggregate Demand and Supply Analysis

23.1 Business Cycles and Inflation

Business Cycles

Inflation

23.2 Aggregate Demand

Components of Aggregate Demand

Following the Financial News Aggregate Output, Unemployment, and Inflation

Deriving the Aggregate Demand Curve

Factors That Shift the Aggregate Demand Curve

FYI What Does Autonomous Mean?

23.3 Aggregate Supply

Long-Run Aggregate Supply Curve

Short-Run Aggregate Supply Curve

Price Stickiness and the Short-Run Aggregate Supply Curve

23.4 Shifts in the Aggregate Supply Curves

Shifts in the Long-Run Aggregate Supply Curve

Shifts in the Short-Run Aggregate Supply Curve

23.5 Equilibrium in Aggregate Demand and Supply Analysis

Short-Run Equilibrium

Aggregate Demand and Supply Analysis Using an Aggregate Output Index

How the Short-Run Equilibrium Moves to the Long-Run Equilibrium over Time

Self-Correcting Mechanism

23.6 Changes in Equilibrium: Aggregate Demand Shocks

Application The Volcker Disinflation, 1980–1986

23.7 Changes in Equilibrium: Aggregate Supply (Inflation) Shocks

Application Negative Supply Shocks, 1973–1975 and 1978–1980

23.8 Conclusions from Aggregate Demand and Supply Analysis

Application AD/AS Analysis of the Great Recession of 2007–2009

Application An AD/AS Analysis of the Covid-19 Recession

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Appendix to Chapter 23: The Phillips Curve and the Short-Run Aggregate Supply Curve

23.A1 The Phillips Curve

Phillips Curve Analysis in the 1960s

The Friedman-Phelps Phillips Curve Analysis

FYI The Phillips Curve Trade-Off and Macroeconomic Policy in the 1960s

The Phillips Curve After the 1960s

The Modern Phillips Curve

The Modern Phillips Curve with Adaptive (Backward-Looking) Expectations

23.A2 The Short-Run Aggregate Supply Curve

Chapter 24: Monetary Policy Theory

24.1 Response of Monetary Policy to Shocks

Response to an Aggregate Demand Shock

Response to a Supply Shock

The Bottom Line: The Relationship Between Stabilizing Inflation and Stabilizing Economic Activity

24.2 How Actively Should Policymakers Try to Stabilize Economic Activity?

Lags and Policy Implementation

FYI The Activist/Nonactivist Debate over the Obama Fiscal Stimulus Package

24.3 Inflation: Always and Everywhere a Monetary Phenomenon

24.4 Causes of Inflationary Monetary Policy

High Employment Targets and Inflation

Application The Great Inflation

24.5 Monetary Policy at the Effective Lower Bound

Deriving the Aggregate Demand Curve with the Effective Lower Bound

The Disappearance of the Self-Correcting Mechanism at the Effective Lower Bound

Application Nonconventional Monetary Policy and Quantitative Easing

Liquidity Provision

Asset Purchases and Quantitative Easing

Management of Expectations

Application Abenomics and the Shift in Japanese Monetary Policy in 2013

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Chapter 25: The Role of Expectations in Monetary Policy

25.1 Lucas Critique of Policy Evaluation

Econometric Policy Evaluation

Application The Term Structure of Interest Rates

25.2 Policy Conduct: Rules or Discretion?

Discretion and the Time-Inconsistency Problem

Types of Rules

The Case for Rules

FYI The Political Business Cycle and Richard Nixon

The Case for Discretion

Constrained Discretion

Global The Demise of Monetary Targeting in Switzerland

25.3 The Role of Credibility and a Nominal Anchor

Benefits of a Credible Nominal Anchor

Credibility and Aggregate Demand Shocks

Credibility and Aggregate Supply Shocks

Application A Tale of Three Oil Price Shocks

Credibility and Anti-Inflation Policy

Global Ending the Bolivian Hyperinflation: A Successful Anti-Inflation Program

25.4 Approaches to Establishing Central Bank Credibility

Nominal GDP Targeting

Appoint “Conservative” Central Bankers

Inside the Fed The Appointment of Paul Volcker, Anti-Inflation Hawk

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Chapter 26: Transmission Mechanisms of Monetary Policy

26.1 Transmission Mechanisms of Monetary Policy

Traditional Interest-Rate Channels

Other Asset Price Channels

Credit View

FYI Consumers’ Balance Sheets and the Great Depression

Why Are Credit Channels Likely to Be Important?

Application The Great Recession

26.2 Lessons for Monetary Policy

Application Applying the Monetary Policy Lessons to Japan’s Two Lost Decades

Summary

Key Terms

Questions

Applied Problems

Data Analysis Problems

Glossary

Index

A

B

C

D

E

F

G

H

I

J

K

L

M

N

O

P

Q

R

S

T

U

V

W

Y

Z