SOLUTION MANUAL for Money, Banking, Financial Markets
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& Institutions 2nd Edition
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by Brandl Michael, All Chapters 1 - 24
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,TABLE OF CONTENTS s s s
Part I: MONEY AND ITS PRICES.
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1. Introduction and Overview.
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2. Money, Money Supply and Interest.
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3. Bonds, Loanable Funds & Interest Rates.
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4. Interest Rates in More Detail.
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Part II: MONEY AND OVERALL ECONOMY.
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5. Financial Markets through Time.
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6. Aggregate Supply & Aggregate Demand.
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7. Banks and Money.
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Part III: CENTRAL BANKS.
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8. Central Banks.
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9. Monetary Policy Tools.
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10. The Money Supply Process.
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11. Monetary Policy & Debates.
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Part IV: THE BANKING SYSTEM.
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12. Bank Management.
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13. Bank Risk Management & Performance.
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14. Banking Regulation.
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Part V: FINANCIAL MARKETS.
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15. Money Markets.
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16. Bond Markets.
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17. Stock Market & Efficiency.
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18. Mortgage Market.
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Part VI: GLOBAL FINANCIAL MARKETS.
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19. FX.
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20. Global Financial Architecture.
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Part VII: FINANCIAL INSTITUTIONS.
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21. Thrifts and Finance Companies.
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22. Insurance and Pensions.
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23. Mutual Funds.
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24. Investment Banks and Private Equity.
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, CHAPTERs2:sMoney,sMoneysSupply,sandsInterest
2-1 SectionsReview
1. Whatsissthesdifferencesbetweensmoneysandscurrency?sWhensarestheysthessame?sWhysmightstheysbesdifferent?
ANS:sMoneysissanythingsgenerallysacceptedsinsexchangesforsgoodss&sservices.sCurrencysississuedsbysasbanksorsthesgove
rnment,sbutscurrencysissnotsnecessarilysmoney.sTheysaresthessameswhenstheysaresacceptedsinsexchangesforsgoodssandss
ervices.sCurrenciesscansstopsbeingsmoneysifspeoplesdon’tsacceptsthemsinsexchangesforsgoodssandsservices.sIfsasgroupsofs
peoplesstopsusingscurrencystosgetsgoodssandsservicessbutsinsteadsusesbananas,sthensthesbananassaresthesmoney.
2. Howsmanyspricessmustsasbarterseconomyshavesifstheseconomyshassfoursgoods?sWhatsifsitshass400sgoods?sExplainsw
hyshavingsasmoneysinsthessecondscasesissbeneficial.
ANS:s4sgoodss=s6sprices;s400sgoodss=s79,800sprices.sMoneysallowssusstosspecializesandsreducesourssearchscost.s Moneysal
lowssusstosreducesthesnumbersofsstatedspricesswesneed.
3. Yousreadsasnewssstorysaboutsascountrysthatsisssufferingsfromsrapid,songoingsincreasessinsthescostsofsliving.sWhichsch
aracteristicsofsmoneysissbeingsdirectlysnegativelysimpactedsinsthatseconomy?
a. Unitsofsaccount
b. Mediumsofsexchange
c. Storesofsvalue
d. DoublescoincidencesofswantssAN
S:sC
2-2 SectionsReview
1. Bobbysissconfused.sHesstates:s“Sincesprisonerssaresnotsallowedstossmokesinsprisonssanyslonger,
Radford’ssexamplessofscigarettessinsPOWscampssnoslongersapplies.”sHowswouldsyousexplainstosBobbyshowsRadford’ss
storysdemonstratessthesconceptssofsthescriteriasofsmoney,sasswellsassthesimportancesofschangessinsthesmoneyssupply?
ANS:sAnysassetsthatsissablestosbesstandardized,sdivisible,sdurablesandsinsdemandscouldsbescurrency,sasslongsassitsissasmedi
umsofsexchange,sissasunitsofsaccountsandshassstoresofsvalue.s Cigarettessweresmoney.
, 2. ProponentssofsthesGoldsStandard,sorsusingsgoldsassmoney,softensarguesthatsitswillskeepsinflationsunderscontrol.sHowsd
oessthesexperiencesofsEuropesinsthessixteenthscenturysraisesdoubtssaboutsthatsclaim?
ANS:sIfspeoplesstartstoshoardsgoldsorssilver,stheresmaysnotsbesenoughsmoney,sandsanseconomyscouldsslidesintosrecessio
n.s Ifsgoldsorssilversincreasesstoosrapidlystheseconomyscouldssuffersinflation.
3. RicardosandsFriedmansagreesthatsifsthesmoneyssupplysincreasess“toosquickly”sthesfollowingshappens:
a. Thesratesofsinflationsdecreases.
b. Thesratesofsrealseconomicsgrowthsincreases.
c. Thesratesofsinflationsincreases.
d. Theslevelsofsemploymentsdecreases.
ANS:sC
2-3 SectionsReview
1. Ascriticsofsmoneyseconomicssoncesstated,s“ifsyouscannotsmeasuresthesmoneyssupplysaccurately,sitsissnotsworthsdiscus
singsatsall.”sHowswouldsyousrefutesthissstatement?
ANS:sDuestoschangessinsfinancialsmarkets,sfinancialsinnovationsandschangessinstheswaysbankssoperate,sledstosthesdecline
sinsthesusefulnesssofsM2sassasmonetarysaggregate.
2. Economistssaressearchingsforsas“good”smeasurementsofsthesmoneyssupply.sWhatsconstitutessasgoodsmeasurementsofs
thesmoneyssupply?
ANS:sToseconomists,sas“good”smeasurementsofsthesmoneyssupplysissonesthatsconformsstoseconomicstheoriessregardingsi
nflationsandstheseconomy.sForsexample,sifsthesmoneyssupplys(accordingstosasparticularsmeasurement)sincreasessfastersth
ansthesgrowthsratesofstheseconomy,sthenseconomicstheoryssuggestssthatsinflationsshouldsoccur.sOnsthesothershand,sifsthes
moneyssupplys(accordingstosasparticularsmeasurement)sincreasesstoosslowlysrelativestosthesgrowthsratesofstheseconomy,st
henseconomicstheoryssuggestssthatsthisswillsresultsinsasrecession.sWhensthesmeasurementsofsthesmoneyssupplyscoincidess
withstheseseconomicspredictions,sthensthatsparticularsmeasurementshassthespotentialstosbesas“good”smeasurementsofsthes
moneyssupply.sDuringscertainsperiodssofstime,sbothsM1sandsM2shavesbeen
consideredstosbes“good”smeasurementssofsthesmoneyssupply.sHowever,sthereshavesalsosbeensperiodssofstimeswheresthesch
angessinsM1sorsM2sdidsnotscoincideswithseconomicstheory.
3. Whichsofsthesfollowingsissthesbroadestsorsmostsinclusivesmeasurementsofsthesmoneyssupply?
a. M1
b. M2
c. M3
d. M0
ANS:s B
