Solution Manual for Money, Banking, Financial Markets & Institutions, 2nd Edition by Brandl – Complete Chapters

,TABLE OF CONTENTS FDS FDS FDS




Part I: MONEY AND ITS PRICES.
FDS FDS FDS FDS FDS




1. Introduction and Overview.
FDS FDS FDS




2. Money, Money Supply and Interest.
FDS FDS FDS FDS FDS




3. Bonds, Loanable Funds & Interest Rates.
FDS FDS FDS FDS FDS FDS




4. Interest Rates in More Detail.
FDS FDS FDS FDS FDS




Part II: MONEY AND OVERALL ECONOMY.
FDS FDS FDS FDS FDS




5. Financial Markets through Time.
FDS FDS FDS FDS




6. Aggregate Supply & Aggregate Demand.
FDS FDS FDS FDS FDS




7. Banks and Money.
FDS FDS FDS




Part III: CENTRAL BANKS.
FDS FDS FDS




8. Central Banks.
FDS FDS




9. Monetary Policy Tools.
FDS FDS FDS




10. The Money Supply Process.
FDS FDS FDS FDS




11. Monetary Policy & Debates.
FDS FDS FDS FDS




Part IV: THE BANKING SYSTEM.
FDS FDS FDS FDS




12. Bank Management.
FDS FDS




13. Bank Risk Management & Performance.
FDS FDS FDS FDS FDS




14. Banking Regulation.
FDS FDS




Part V: FINANCIAL MARKETS.
FDS FDS FDS




15. Money Markets.
FDS FDS




16. Bond Markets.
FDS FDS




17. Stock Market & Efficiency.
FDS FDS FDS FDS




18. Mortgage Market.
FDS FDS




Part VI: GLOBAL FINANCIAL MARKETS.
FDS FDS FDS FDS




19. FX.FDS




20. Global Financial Architecture.
FDS FDS FDS




Part VII: FINANCIAL INSTITUTIONS.
FDS FDS FDS




21. Thrifts and Finance Companies.
FDS FDS FDS FDS




22. Insurance and Pensions.
FDS FDS FDS




23. Mutual Funds.
FDS FDS




24. Investment Banks and Private Equity.
FDS FDS FDS FDS FDS

, CHAPTER 2: Money, Money Supply, and Interest FDS FDS FDS FDS FDS FDS




2-1 Section Review FDS




1. What is the difference between money and currency? When are they the same? Why might they bedifferent?
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




ANS: Money is anything generally accepted in exchange for goods & services. Currency is issued by a bank or the govern
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




ment, but currency is not necessarily money. They are the same when they are accepted in exchange for goods and servi
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




ces. Currencies can stop being money if people don’t acceptthem in exchange for goods and services. If a group of peopl
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




e stop using currency to get goods and services but instead use bananas, then the bananas are the money.
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




2. How many prices must a barter economy have if the economy has four goods? What if it has 400goods? Explain why
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




having a money in the second case is beneficial.
FDS FDS FDS FDS FDS FDS FDS FDS




ANS: 4 goods = 6 prices; 400 goods = 79,800 prices. Money allows us to specialize and reduce our searchcost. Money all
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS F D S FDS




ows us to reduce the number of stated prices we need.
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




3. You read a news story about a country that is suffering from rapid, ongoing increases in the cost ofliving. Which char
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




acteristic of money is being directly negatively impacted in that economy?
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




a. Unit of account FDS FDS




b. Medium of exchange FDS FDS




c. Store of value FDS FDS




d. Double coincidence of wantsAN FDS FDS FDS FDS




S: C FD S




2-2 Section Review FDS




1. Bobby is confused. He states: “Since prisoners are not allowed to smoke in prisons any longer,
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




Radford’s examples of cigarettes in POW camps no longer applies.” How would you explain to Bobbyhow Radford’s st
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




ory demonstrates the concepts of the criteria of money, as well as the importance ofchanges in the money supply?
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




ANS: Any asset that is able to be standardized, divisible, durable and in demand could be currency, as long as it is a mediu
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




m of exchange, is a unit of account and has store of value. Cigarettes were money.
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS F D S FDS FDS

, 2. Proponents of the Gold Standard, or using gold as money, often argue that it will keep inflation undercontrol. How doe FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




s the experience of Europe in the sixteenth century raise doubts about that claim?
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




ANS: If people start to hoard gold or silver, there may not be enough money, and an economy couldslide into recession.
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




FIf gold or silver increases too rapidly the economy could suffer inflation.
D S FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




3. Ricardo and Friedman agree that if the money supply increases “too quickly” the following happens: FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




a. The rate of inflation decreases. FDS FDS FDS FDS




b. The rate of real economic growth increases. FDS FDS FDS FDS FDS FDS




c. The rate of inflation increases. FDS FDS FDS FDS




d. The level of employment decreases. FDS FDS FDS FDS




ANS: C FDS




2-3 Section Review FDS




1. A critic of money economics once stated, “if you cannot measure the money supply accurately, it isnot worth discussi
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




ng at all.” How would you refute this statement?
FDS FDS FDS FDS FDS FDS FDS FDS




ANS: Due to changes in financial markets, financial innovation and changes in the way banks operate,led to the decline i
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FD S




n the usefulness of M2 as a monetary aggregate.
FDS FDS FDS FDS FDS FDS FDS FDS




2. Economists are searching for a “good” measurement of the money supply. What constitutes a goodmeasurement of th FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




e money supply?
FDS FDS




ANS: To economists, a “good” measurement of the money supply is one that conforms to economic theories regarding infl
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




ation and the economy. For example, if the money supply (according to a particular measurement) increases faster than th
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




e growth rate of the economy, then economic theory suggests that inflation should occur. On the other hand, if the money
FDS FDS FDS FDS FDS FDS FDS FDS FD S FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




supply (according to a particular measurement) increases too slowly relative to the growth rate of the economy, then econ
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




omic theory suggests that this will result in a recession. When the measurement of the money supply coincides withthese e
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




conomic predictions, then that particular measurement has the potential to be a “good” measurement of the money supply
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




. During certain periods of time, both M1 and M2 have been
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




considered to be “good” measurements of the money supply. However, there have also been periods oftime where the cha
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FD S




nges in M1 or M2 did not coincide with economic theory.
FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




3. Which of the following is the broadest or most inclusive measurement of the money supply? FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS FDS




a. M1

b. M2

c. M3

d. M0
ANS: B F D S