SOLUTION MANUAL For Money, Banking, Financial Markets and Institutions, 2nd Edition by Brandl Michael, Verified Chapters 1 - 24, Complete

SOLUTION MANUAL for Money, Banking, Financial
n n n n n




nMarkets & Institutions 2nd Edition
n n n n n




by Brandl Michael, All Chapters 1 - 24
n n n n n n n

,TABLE OF CONTENTS n n n




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


1. Introduction and Overview.
n n n


2. Money, Money Supply and Interest.
n n n n n


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


4. Interest Rates in More Detail.
n n n n n


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


5. Financial Markets through Time.
n n n n


6. Aggregate Supply & Aggregate Demand.
n n n n n


7. Banks and Money.
n n n


Part III: CENTRAL BANKS.
n n n


8. Central Banks.
n n


9. Monetary Policy Tools.
n n n


10. The Money Supply Process.
n n n n


11. Monetary Policy & Debates.
n n n n


Part IV: THE BANKING SYSTEM.
n n n n


12. Bank Management.
n n


13. Bank Risk Management & Performance.
n n n n n


14. Banking Regulation.
n n


Part V: FINANCIAL MARKETS.
n n n


15. Money Markets.
n n


16. Bond Markets.
n n


17. Stock Market & Efficiency.
n n n n


18. Mortgage Market.
n n


Part VI: GLOBAL FINANCIAL MARKETS.
n n n n


19. FX.
n


20. Global Financial Architecture.
n n n


Part VII: FINANCIAL INSTITUTIONS.
n n n


21. Thrifts and Finance Companies.
n n n n


22. Insurance and Pensions.
n n n


23. Mutual Funds.
n n


24. Investment Banks and Private Equity.
n n n n n

, CHAPTER n2: nMoney, nMoney nSupply, nand
nInterest



2-1 Section nReview

1. What nis nthe ndifference nbetween nmoney nand ncurrency? nWhen nare nthey nthe nsame? nWhy
nmight nthey nbendifferent?




ANS: nMoney nis nanything ngenerally naccepted nin nexchange nfor ngoods n& nservices.
nCurrency nis nissued nby na n bank nor nthe ngovernment, nbut ncurrency nis nnot nnecessarily


nmoney. nThey nare nthe nsame nwhen nthey nare naccepted nin nexchange nfor ngoods nand


nservices. nCurrencies ncan nstop nbeing nmoney nif n people ndon’t nacceptnthem nin nexchange nfor


ngoods nand nservices. nIf na ngroup nof npeople nstop nusing ncurrency nto nget ngoods nand


nservices nbut ninstead nuse nbananas, nthen nthe nbananas nare nthe nmoney.



2. How nmany nprices nmust na nbarter neconomy nhave nif nthe neconomy nhas nfour ngoods?
nWhat nif nit nhas n400ngoods? nExplain nwhy nhaving na nmoney nin nthe nsecond ncase nis

nbeneficial.



ANS: n4 ngoods n= n6 nprices; n400 ngoods n= n79,800 nprices. nMoney nallows nus nto nspecialize nand
nreduce nour nsearchncost. n Money nallows nus nto nreduce nthe nnumber nof nstated nprices nwe


nneed.



3. You nread na nnews nstory nabout na ncountry nthat nis nsuffering nfrom nrapid, nongoing
nincreases nin nthe ncost nofnliving. nWhich ncharacteristic nof nmoney nis nbeing ndirectly

nnegatively nimpacted nin nthat neconomy?



a. Unit nof naccount

b. Medium nof nexchange

c. Store nof nvalue

d. Double ncoincidence nof

wantsnANS: nC
n



2-2 Section nReview

1. Bobby nis nconfused. nHe nstates: n“Since nprisoners nare nnot nallowed nto nsmoke nin nprisons nany
nlonger,

Radford’s nexamples nof ncigarettes nin nPOW ncamps nno nlonger napplies.” nHow nwould nyou
nexplain nto nBobby nhow nRadford’s nstory ndemonstrates nthe nconcepts nof nthe ncriteria nof

nmoney, nas nwell nas nthe nimportance nofnchanges nin nthe nmoney nsupply?



ANS: nAny nasset nthat nis nable nto nbe nstandardized, ndivisible, ndurable nand nin ndemand
ncould nbe ncurrency, nas nlong nas nit nis na nmedium nof nexchange, nis na nunit nof naccount nand

nhas nstore nof nvalue. n Cigarettes nwere nmoney.

, 2. Proponents nof nthe nGold nStandard, nor nusing ngold nas nmoney, noften nargue nthat nit nwill
nkeep ninflation nunderncontrol. nHow ndoes nthe nexperience nof nEurope nin nthe nsixteenth ncentury

nraise ndoubts nabout nthat nclaim?



ANS: nIf npeople nstart nto nhoard ngold nor nsilver, nthere nmay nnot nbe nenough nmoney, nand nan
neconomy ncouldnslide ninto nrecession. n If ngold nor nsilver nincreases ntoo nrapidly nthe

neconomy ncould nsuffer ninflation.



3. Ricardo nand nFriedman nagree nthat nif nthe nmoney nsupply nincreases n“too nquickly” nthe
nfollowing nhappens:



a. The nrate nof ninflation ndecreases.

b. The nrate nof nreal neconomic ngrowth nincreases.

c. The nrate nof ninflation nincreases.

d. The nlevel nof nemployment ndecreases.
ANS: nC

2-3 Section nReview

1. A ncritic nof nmoney neconomics nonce nstated, n“if nyou ncannot nmeasure nthe nmoney nsupply
naccurately, nit nisnnot nworth ndiscussing nat nall.” nHow nwould nyou nrefute nthis nstatement?




ANS: nDue nto nchanges nin nfinancial nmarkets, nfinancial ninnovation nand nchanges nin nthe
nway nbanks noperate,nled nto nthe ndecline n in nthe nusefulness nof nM2 nas na nmonetary


naggregate.



2. Economists nare nsearching nfor na n“good” nmeasurement nof nthe nmoney nsupply. nWhat
nconstitutes na ngoodnmeasurement nof nthe nmoney nsupply?




ANS: nTo neconomists, na n“good” nmeasurement nof nthe nmoney nsupply nis none nthat nconforms
nto neconomic ntheories nregarding ninflation nand nthe neconomy. nFor nexample, nif nthe nmoney


nsupply n(according nto na nparticular nmeasurement) nincreases nfaster nthan nthe ngrowth nrate nof


nthe neconomy, nthen neconomic ntheory nsuggests nthat ninflation nshould noccur. nOn nthe n other


nhand, nif nthe nmoney nsupply n(according nto na nparticular nmeasurement) nincreases ntoo nslowly


nrelative nto nthe ngrowth nrate nof nthe neconomy, nthen neconomic ntheory nsuggests nthat nthis


nwill nresult nin na nrecession. nWhen nthe nmeasurement nof nthe nmoney nsupply ncoincides nwith


nthese neconomic npredictions, nthen nthat nparticular nmeasurement nhas nthe npotential nto nbe na


n“good” nmeasurement nof nthe nmoney nsupply. nDuring ncertain nperiods nof ntime, nboth nM1


nand nM2 nhave nbeen


considered nto nbe n“good” nmeasurements nof nthe nmoney nsupply. nHowever, nthere nhave nalso
nbeen nperiods nofntime nwhere nthe n changes nin nM1 nor nM2 ndid nnot ncoincide nwith neconomic


ntheory.



3. Which nof nthe nfollowing nis nthe nbroadest nor nmost ninclusive nmeasurement nof nthe nmoney
nsupply?



a. M1

b. M2