1. Activities in financial markets have direct effects on individuals' wealth, the behavior of businesses, and the efficiency of our economy. Three financial markets deserve particular attention: the bond market (where interest rates are determined), the stock market (which has a major effect on peoples wealth and on firms' investment decisions), and the foreign exchange market (because fluctuations in the foreign exchange rate have major consequences for the American economy).
2. Banks and other financial institutions channel funds from people who might not put them to productive use to people who can do so and thus play a crucial role in improving the efficiency of the economy.
3. Money appears to be a major influence on inflation, business cycles, and interest rates. Because these economic variables are so important to the health of the economy, we need to understand how monetary policy is and should be conducted. We also need to study government fiscal policy because it can be an influential factor in the conduct of monetary policy.
4. This textbook stresses the economic way of thinking by developing a unifying analytic framework for the study of money, banking, and financial markets using a few basic economic principles. This textbook also emphasizes the interaction of theoretical analysis and empirical data.
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