©2005PearsonEducationCanadaInc.Chapter1WhyStudyMoney,Banking,andFinancialMarkets?©2005PearsonEducationCanadaInc.1-2WhyStudyFinancialMarkets?1.Channelfundsfromsaverstoinvestors,therebypromotingeconomicefficiency2.AffectpersonalwealthandbehaviorofbusinessfirmsWhyStudyBankingandFinancialInstitutions?1.FinancialIntermediationHelpsgetfundsfromsaverstoinvestors2.BanksandMoneySupplyCrucialroleincreationofmoney3.FinancialInnovationWhyStudyMoneyandMonetaryPolicy?1.Influenceonbusinesscycles,inflation,andinterestrates©2005PearsonEducationCanadaInc.1-3BondMarket©2005PearsonEducationCanadaInc.1-4StockMarket©2005PearsonEducationCanadaInc.1-5ForeignExchangeMarket©2005PearsonEducationCanadaInc.1-6MoneyandBusinessCycles©2005PearsonEducationCanadaInc.1-7MoneyandthePriceLevel©2005PearsonEducationCanadaInc.1-8MoneyGrowthandInflation©2005PearsonEducationCanadaInc.1-9MoneyGrowthandInterestRates©2005PearsonEducationCanadaInc.1-10FiscalPolicyandMonetaryPolicy1-11HowWeStudyMoneyandBankingBasicAnalyticFramework1.Simplifiedapproachtothedemandforassets2.Conceptofequilibrium3.Basicsupplyanddemandapproachtounderstandbehaviorinfinancialmarkets4.Searchforprofits5.Transactionscostandasymmetricinformationapproachtofinancialstructure6.AggregatesupplyanddemandanalysisFeatures1.Casestudies2.Applications3.Special-interestboxes4.FollowingtheFinancialNewsboxes5.Readingthefinancialpages6.WebExercisesandURLs©2005PearsonEducationCanadaInc.©2005PearsonEducationCanadaInc.1-12Appendix:DefinitionsAggregateOutputGrossDomesticProduct(GDP)=ValueofallfinalgoodsandservicesproducedindomesticeconomyduringyearAggregateIncomeTotalincomeoffactorsofproduction(land,capital,labor)duringyearDistinctionBetweenNominalandRealNominal=valuesmeasuredusingcurrentpricesReal=quantities,measuredwithconstantpricesAggregatePriceLevelnominalGDPGDPDeflator=realGDP$10trillionGDPDeflator==1.11$9trillionConsumerPriceIndex(CPI)priceof“basket”ofgoodsandservices©2005PearsonEducationCanadaInc.1-1311GrowthRate100tttxxx$9.5trillion$9trillionGDPGrowthRate1005.6%$9trillion113111InflationRate1001.8%111Appendix:DefinitionsGrowthRatesandtheInflationRate