Chapter

WHY STUDY MONEY, BANKING, AND FINANCIAL MARKETS? 3

Preview 3

Why Study Financial Markets? 3

The Bond Market and Interest Rates 3

The Stock Market 5

The Foreign Exchange Market 5

Why Study Banking and Financial Institutions? 7

Structure of the Financial System 7

Banks and Other Financial Institutions 8

Financial Innovation 8

Why Study Money and Monetary Policy? 8

Money and Business Cycles 9

Money and Inflation 10

Money and Interest Rates 12

Conduct of Monetary Policy 12

Fiscal Policy and Monetary Policy 12

How We Will Study Money, Banking, and Financial Markets 13

Exploring the Web 14

Concluding Remarks 17

Summary, Key Terms, Questions and Problems, and Web Exercises 17

Appendix to Chapter 1

Defining Aggregate Output, Income, the Price Level, and the Inflation Rate 20

Aggregate Output and Income 20

Real Versus Nominal Magnitudes 20

Aggregate Price Level 21

Growth Rates and the Inflation Rate 22

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