The Economics of Money, Banking and Financial Markets, 8th Canadian Edition by Frederic Mishkin | TEST BANK

Test Bank for The Economics of Money, Banking and Financial Markets, Eight Canadian Edition, 8ce by Frederic S. Mishkin,Apostolos Serletis TEST BANK ISBN-13: 9780137639175 FULL CHAPTERS INCLUDED PART 1 Introductio ...

Test Bank for The Economics of Money, Banking and Financial Markets, Eight Canadian Edition, 8ce by Frederic S. Mishkin,Apostolos Serletis TEST BANK ISBN-13: 9780137639175 FULL CHAPTERS INCLUDED PART 1 Introduction CHAPTER 1: Why Study Money, Banking, and Financial Markets? 1.1 Why Study Financial Markets? Debt Markets and Interest Rates The Stock Market 1.2 Why Study Financial Institutions and Banking? Structure of the Financial System Banks and Other Financial Institutions Financial Innovation Financial Crises 1.3 Why Study Money and Monetary Policy? Money and Business Cycles Money and Inflation Money and Interest Rates Conduct of Monetary Policy Fiscal Policy and Monetary Policy 1.4 Why Study International Finance? The Foreign Exchange Market The International Financial System 1.5 Money, Banking, and Financial Markets and Your Career 1.6 How We Will Study Money, Banking, and Financial Markets Concluding Remarks SUMMARY QUESTIONS APPLIED PROBLEMS APPENDIX TO CHAPTER 1: Defining Aggregate Output, Income, the Price Level, and the Inflation Rate Aggregate Output and Income Real Versus Nominal Magnitudes Aggregate Price Level Growth Rates and the Inflation Rate CHAPTER 2: An Overview of the Financial System 2.1 Function of Financial Markets 2.2 Structure of Financial Markets Debt and Equity Markets Primary and Secondary Markets Exchanges and Over-the-Counter Markets Money and Capital Markets 2.3 Financial Market Instruments Money Market Instruments Following the Financial News Money Market Rates Capital Market Instruments Following the Financial News Capital Market Interest Rates 2.4 Internationalization of Financial Markets Global Are U.S. Capital Markets Losing Their Edge? International Bond Market, Eurobonds, and Eurocurrencies World Stock Markets 2.5 Function of Financial Intermediaries: Indirect Finance Following the Financial News Foreign Stock Market Indexes Transaction Costs Global The Importance of Financial Intermediaries Relative to Securities Markets: An International Risk Sharing Asymmetric Information: Adverse Selection and Moral Hazard Economies of Scope and Conflicts of Interest 2.6 Types of Financial Intermediaries Depository Institutions Contractual Savings Institutions Investment Intermediaries 2.7 Regulation of the Financial System Increasing Information Available to Investors Ensuring the Soundness of Financial Intermediaries Financial Regulation Abroad SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS CHAPTER 3: What Is Money? 3.1 Meaning of Money 3.2 Functions of Money Medium of Exchange Unit of Account Store of Value 3.3 Evolution of the Payments System Commodity Money Fiat Money Cheques Electronic Payment E-Money FYI Are We Headed for a Cashless Society? APPLICATION: Will Bitcoin or Other Cryptocurrencies Become the Money of the Future? 3.4 Measuring Money The Bank of Canada’s Monetary Aggregates FYI Where Are All the Dollars? Money as a Weighted Aggregate SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS PART 2 Financial Markets CHAPTER 4: The Meaning of Interest Rates 4.1 Measuring Interest Rates Present Value APPLICATION: Simple Present Value APPLICATION: How Much Is That Jackpot Worth? Four Types of Credit Market Instruments Yield to Maturity APPLICATION: Yield to Maturity on a Simple Loan APPLICATION: Yield to Maturity and the Yearly Payment on a Fixed-Payment Loan APPLICATION: Yield to Maturity and Bond Price for a Coupon Bond APPLICATION: Yield to Maturity on a Perpetuity APPLICATION: Yield to Maturity on a Discount Bond 4.2 The Distinction Between Interest Rates and Returns Global Negative Interest Rates? Japan First, Then the United States, Then Europe Maturity and the Volatility of Bond Returns: Interest-Rate Risk Summary 4.3 The Distinction Between Real and Nominal Interest Rates APPLICATION: Calculating Real Interest Rates SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS CHAPTER 5: The Behaviour of Interest Rates 5.1 Determinants of Asset Demand Wealth Expected Returns Risk Liquidity Theory of Portfolio Choice 5.2 Supply and Demand in the Bond Market Demand Curve Supply Curve Market Equilibrium Supply and Demand Analysis 5.3 Changes in Equilibrium Interest Rates Shifts in the Demand for Bonds Shifts in the Supply of Bonds APPLICATION: Changes in the Interest Rate Due to a Change in Expected Inflation: The Fisher Effect APPLICATION: Changes in the Interest Rate Due to a Business Cycle Expansion APPLICATION: Explaining Current Low Interest Rates in Europe, Japan, and the United States: Low In 5.4 Supply and Demand in the Market for Money: The Liquidity Preference Framework 5.5 Changes in Equilibrium Interest Rates in the Liquidity Preference Framework Shifts in the Demand for Money Shifts in the Supply of Money APPLICATION: Changes in the Equilibrium Interest Rate Due to Changes in Income, the Price Level, o Changes in Income Changes in the Price Level Changes in the Money Supply 5.6 Money and Interest Rates APPLICATION: Does a Higher Rate of Growth of the Money Supply Lower Interest Rates? SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS CHAPTER 6: The Risk and Term Structure of Interest Rates 6.1 Risk Structure of Interest Rates Default Risk FYI Conflicts of Interest at Credit-Rating Agencies and the Global Financial Crisis APPLICATION: The Coronavirus Pandemic and the Baa–Treasury Spread in the United States Liquidity Income Tax Considerations Summary 6.2 Term Structure of Interest Rates Following the Financial News Yield Curves Expectations Theory Segmented Markets Theory Liquidity Premium and Preferred Habitat Theories FYI The Yield Curve as a Forecasting Tool for Inflation and the Business Cycle Evidence on the Term Structure Summary APPLICATION: Interpreting Yield Curves, 1986–2020 APPLICATION: Using the Term Structure to Forecast Interest Rates APPLICATION: Forward Rate SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS CHAPTER 7: The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesi 7.1 Computing the Price of Common Stock The One-Period Valuation Model The Generalized Dividend Valuation Model The Gordon Growth Model 7.2 How the Market Sets Stock Prices APPLICATION: Monetary Policy and Stock Prices APPLICATION: The Coronavirus Stock Market Crash of 2020 7.3 The Theory of Rational Expectations Formal Statement of the Theory Rationale Behind the Theory Implications of the Theory 7.4 The Efficient Market Hypothesis: Rational Expectations in Financial Markets Rationale Behind the Hypothesis Random-Walk Behaviour of Stock Prices Global Should Foreign Exchange Rates Follow a Random Walk? APPLICATION: Practical Guide to Investing in the Stock Market How Valuable Are Reports Published by Investment Advisers? Should You Be Skeptical of Hot Tips? FYI Should You Hire an Ape as Your Investment Adviser? Do Stock Prices Always Rise When There Is Good News? Efficient Market Prescription for the Investor 7.5 Why the Efficient Market Hypothesis Does Not Imply That Financial Markets Are Efficient APPLICATION: What Do Stock Market Crashes Tell Us About the Efficient Market Hypothesis and the Ef 7.6 Behavioural Finance SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS PART 3 Financial Institutions CHAPTER 8: An Economic Analysis of Financial Structure 8.1 Basic Facts About Financial Structure Throughout The World 8.2 Transaction Costs How Transaction Costs Influence Financial Structure How Financial Intermediaries Reduce Transaction Costs 8.3 Asymmetric Information: Adverse Selection and Moral Hazard 8.4 The Lemons Problem: How Adverse Selection Influences Financial Structure Lemons in the Stock and Bond Markets Tools to Help Solve Adverse Selection Problems FYI The Enron Implosion 8.5 How Moral Hazard Affects the Choice Between Debt and Equity Contracts Moral Hazard in Equity Contracts: The Principal–Agent Problem Tools to Help Solve the Principal–Agent Problem 8.6 How Moral Hazard Influences Financial Structure in Debt Markets Tools to Help Solve Moral Hazard in Debt Contracts Summary APPLICATION: Financial Development and Economic Growth FYI The Tyranny of Collateral APPLICATION: Is China a Counterexample to the Importance of Financial Development? SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS CHAPTER 9: Economic Analysis of Financial Regulation 9.1 Asymmetric Information and the Government Safety Net Government Safety Net Global The Spread of Government Deposit Insurance Throughout the World: Is It a Good Thing? Drawbacks of the Government Safety Net 9.2 Types of Financial Regulation Restrictions on Asset Holdings Capital Requirements Prompt Corrective Action Financial Supervision: Chartering and Examination Global Where Is the Basel Accord Heading After the Global Financial Crisis? Assessment of Risk Management Disclosure Requirements Consumer Protection Restrictions on Competition Summary Global International Financial Regulation 9.3 CDIC Deposit Insurance Coverage Differential Premiums Opting Out Resolution Authority and the Bail-in Power SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS CHAPTER 10: Banking Industry: Structure and Competition 10.1 Historical Development of the Canadian Banking System FYI The Dual Banking System in the United States The Free Banking Experiment The Provincial Notes Act, 1866 The Dominion Notes Act, 1870 The First Bank Act, 1871 The Bank Act, 1881–1913 The Finance Act, 1914 10.2 Financial Innovation and the Growth of the “Shadow Banking System” Responses to Changes in Demand Conditions: Interest-Rate Volatility Responses to Changes in Supply Conditions: Information Technology Securitization and the Shadow Banking System Avoidance of Existing Regulations FYI Bruce Bent and the Money Market Mutual Fund Panic of 2008 Financial Innovation and the Decline of Traditional Banking 10.3 Structure of the Canadian Chartered Banking Industry Schedule I, Schedule II, and Schedule III Banks Competition and Technology 10.4 Comparison with the United States Restrictions on Branching Response to Branching Restrictions 10.5 Competition Across All Four Pillars Convergence Implications for Financial Consolidation Separation of Banking and Other Financial Services Industries Throughout the World FYI The Global Financial Crisis and the Demise of Large, Free-Standing Investment Banks 10.6 The Near Banks: Regulation and Structure Trust Companies Loan Companies Cooperatives: Credit Unions and Caisses Populaires Government Savings Institutions 10.7 International Banking Global Ironic Birth of the Eurodollar Market Eurocurrencies Market Canadian Banking Overseas Foreign Banks in Canada 10.8 The 2001 Bank Act Reform Bank Holding Companies Permitted Investments Ownership Rules The CP Act and Access to the Payments and Clearance System Merger Review Policy The National Financial Services OmbudService Implications for the Canadian Banking Industry SUMMARY QUESTIONS DATA ANALYSIS PROBLEMS CHAPTER 11: Financial Crises 11.1 What Is a Financial Crisis? 11.2 Dynamics of Financial Crises Stage One: Initial Phase Stage Two: Banking Crisis Stage Three: Debt Deflation APPLICATION The Mother of All Financial Crises: The Great Depression in the United States Stock Market Crash Bank Panics Continuing Decline in Stock Prices Debt Deflation International Dimensions 11.3 The Global Financial Crisis of 2007–2009 Causes of the 2007–2009 Financial Crisis FYI Collateralized Debt Obligations (CDOs) Effects of the 2007–2009 Financial Crisis FYI Was the Fed to Blame for the Housing Price Bubble? Global The European Sovereign Debt Crisis Height of the 2007–2009 Financial Crisis Government Intervention and the Recovery Global Worldwide Government Bailouts During the 2007–2009 Financial Crisis APPLICATION Could the Coronavirus Pandemic Have Led to a Financial Crisis? 11.4 Canada and the 2007–2009 Financial Crisis FYI Canada’s Asset-Backed Commercial Paper Crisis Subprime Mortgages in Canada Why Was Canada Exempt from the Financial Crisis? 11.5 Response of Financial Regulation Macroprudential Versus Microprudential Supervision Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 11.6 Too Big to Fail and Future Regulation What Can Be Done About the Too-Big-to-Fail Problem? Beyond Dodd-Frank: Where Might Regulation Head in the Future? SUMMARY QUESTIONS DATA ANALYSIS PROBLEMS PART 4 The Management of Financial Institutions CHAPTER 12: Banking and the Management of Financial Institutions 12.1 The Bank Balance Sheet Liabilities Assets 12.2 Basic Banking 12.3 General Principles of Bank Management Liquidity Management and the Role of Reserves Asset Management Liability Management Capital Adequacy Management APPLICATION Strategies for Managing Bank Capital APPLICATION: How a Capital Crunch Caused a Credit Crunch During the Global Financial Crisis 12.4 Managing Credit Risk Screening and Monitoring Long-Term Customer Relationships Loan Commitments Collateral and Compensating Balances Credit Rationing 12.5 Managing Interest-Rate Risk Gap and Duration Analysis APPLICATION: Strategies for Managing Interest-Rate Risk 12.6 Off-Balance-Sheet Activities Loan Sales Generation of Fee Income Trading Activities and Risk Management Techniques Global Barings, Daiwa, Sumitomo, Société Générale, and JP Morgan Chase: Rogue Traders and the SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEM CHAPTER 13: Risk Management with Derivatives 13.1 Hedging 13.2 Interest-Rate Forward Contracts APPLICATION: Hedging with Interest-Rate Forward Contracts Pros and Cons of Forward Contracts 13.3 Financial Futures Contracts and Markets APPLICATION: Hedging with Financial Futures Organization of Trading in Financial Futures Markets The Globalization of Financial Futures Markets Explaining the Success of Futures Markets APPLICATION: Hedging Foreign Exchange Risk Hedging Foreign Exchange Risk with Forward Contracts Hedging Foreign Exchange Risk with Futures Contracts 13.4 Options Stock Options Futures Options APPLICATION: Hedging with Futures Options Factors Affecting Option Premiums Summary 13.5 Swaps Interest-Rate Swap Contracts APPLICATION: Hedging with Interest-Rate Swaps Advantages of Interest-Rate Swaps Disadvantages of Interest-Rate Swaps Financial Intermediaries in Interest-Rate Swaps 13.6 Credit Derivatives Credit Options Credit Swaps Credit-Linked Notes APPLICATION: Lessons from the Global Financial Crisis: When Are Financial Derivatives Likely to Be SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS Part 5 Central Banking and the Conduct of Monetary Policy Chapter 14: Central Banks and the Bank of Canada 14.1 Origins of the Bank of Canada Global Establishment of Selected Central Banks 14.2 Formal Structure of the Bank of Canada The Functions of the Bank of Canada FYI The Political Environment and the Bank of Canada FYI Role of the Bank’s Research Staff 14.3 How Independent Is the Bank of Canada? The Changing Face of the Bank of Canada 14.4 Should the Bank of Canada Be Independent? The Case for Independence FYI Economics and Politics The Case Against Independence Central Bank Independence and Macroeconomic Performance Throughout the World 14.5 Explaining Central Bank Behaviour 14.6 Structure and Independence of Foreign Central Banks Federal Reserve System FYI The Special Role of the Federal Reserve Bank of New York FYI U.S. Presidential Attacks on the Independence of the Fed European Central Bank Bank of England Bank of Japan The Trend Toward Greater Independence SUMMARY QUESTIONS DATA ANALYSIS PROBLEMS Chapter 15: The Money Supply Process 15.1 Three Players in the Money Supply Process 15.2 The Bank of Canada’s Balance Sheet Liabilities Assets 15.3 Control of the Monetary Base Bank of Canada Open Market Operations Shifts from Deposits into Currency Loans to Financial Institutions Other Factors That Affect the Monetary Base Overview of the Bank of Canada’s Ability to Control the Monetary Base 15.4 Multiple Deposit Creation: A Simple Model Deposit Creation: The Single Bank Deposit Creation: The Banking System Deriving the Formula for Multiple Deposit Creation Critique of the Simple Model 15.5 Factors That Determine the Money Supply Changes in the Nonborrowed Monetary Base, MBn Changes in Borrowed Reserves, BR, from the Bank of Canada Changes in the Desired Reserve Ratio, rd Changes in Excess Reserves Changes in Currency Holdings 15.6 Overview of the Money Supply Process 15.7 The Money Multiplier Deriving the Money Multiplier Intuition Behind the Money Multiplier Money Supply Response to Changes in the Factors APPLICATION: Quantitative Easing and the Money Supply During the Global Financial and the Coronavi SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS Chapter 16: Tools of Monetary Policy 16.1 The Framework for the Implementation of Monetary Policy The Large Value Transfer System (LVTS) Non-LVTS (ACSS) Transactions The Bank of Canada’s Policy Rate The Operating Band for the Overnight Interest Rate FYI Monetary Policy Implementation in the LVTS Environment The Bank of Canada’s Standing Facilities The Bank of Canada’s Implementation of the Operating Band for the Overnight Interest Rate 16.2 The Market for Settlement Balances and the Channel/Corridor System for Setting the Overnight Demand and Supply in the Market for Reserves Demand Curve Supply Curve Market Equilibrium APPLICATION: How the Bank of Canada’s Operating Procedures Limit Fluctuations in the Overnight I 16.3 The Bank of Canada’s Approach to Monetary Policy FYI Price-Level Targeting Versus Inflation-Rate Targeting How Monetary Policy Affects the Economy Nominal Interest Rates and Monetary Policy 16.4 Conventional Monetary Policy Tools Open Market (Buyback) Operations Settlement Balances Management APPLICATION: Monetary Control in the Channel/Corridor System Bank of Canada Lending Operation of the Standing Lending Facility FYI Emergency Lending Assistance to Troubled Banks 16.5 Nonconventional Monetary Policy Tools and Quantitative Easing in the Wake of the Global Finan Liquidity Provision FYI Bank of Canada Programs During the Covid-19 Pandemic Large-Scale Asset Purchases Quantitative Easing Versus Credit Easing FYI Quantitative Easing in the Channel/Corridor System: The Floor System of Monetary Control Forward Guidance Negative Interest Rates on Banks’ Deposits FYI Helicopter Money 16.6 Monetary Policy Tools of the Federal Reserve and the European Central Bank Policy Tools of the Federal Reserve Monetary Policy Tools of the European Central Bank SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS Chapter 17: The Conduct of Monetary Policy: Strategy and Tactics 17.1 The Price Stability Goal and the Nominal Anchor The Role of a Nominal Anchor The Time-Inconsistency Problem 17.2 Other Goals of Monetary Policy High Employment and Output Stability Economic Growth Stability of Financial Markets Interest-Rate Stability Stability in Foreign Exchange Markets 17.3 Should Price Stability Be the Primary Goal of Monetary Policy? Hierarchical Versus Dual Mandates Price Stability as the Primary, Long-Run Goal of Monetary Policy 17.4 Inflation Targeting Inflation Targeting in New Zealand, Canada, and the United Kingdom Global The European Central Bank’s Monetary Policy Strategy Advantages of Inflation Targeting Disadvantages of Inflation Targeting 17.5 Lessons for Monetary Policy Strategy from the Global Financial Crisis Implications for Inflation Targeting FYI The Fed’s New Monetary Policy Strategy: Average Inflation Targeting 17.6 Should Central Banks Try to Stop Asset-Price Bubbles? Two Types of Asset-Price Bubbles The Debate over Whether Central Banks Should Try to Pop Bubbles 17.7 Tactics: Choosing the Policy Instrument Criteria for Choosing the Policy Instrument 17.8 Tactics: The Taylor Rule FYI The Bank of Canada’s Use of the Taylor Rule FYI Bank of Canada Watchers SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS Part 6 International Finance and Monetary Policy Chapter 18: The Foreign Exchange Market 18.1 Foreign Exchange Market Following the Financial News Foreign Exchange Rates What Are Foreign Exchange Rates? Why Are Exchange Rates Important? How Is Foreign Exchange Traded? 18.2 Exchange Rates in the Long Run Theory of Purchasing Power Parity APPLICATION Burgernomics: Big Macs and PPP Factors That Affect Exchange Rates in the Long Run 18.3 Exchange Rates in the Short Run: A Supply and Demand Analysis Supply Curve for Domestic Assets Demand Curve for Domestic Assets Equilibrium in the Foreign Exchange Market 18.4 Explaining Changes in Exchange Rates Shifts in the Demand for Domestic Assets Recap: Factors That Change the Exchange Rate APPLICATION: Effects of Changes in Interest Rates on the Equilibrium Exchange Rate APPLICATION: The Global Financial Crisis and the U.S. Dollar APPLICATION: Brexit and the British Pound SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS Chapter 19: The International Financial System 19.1 Intervention in the Foreign Exchange Market Foreign Exchange Intervention and the Money Supply Unsterilized Intervention Sterilized Intervention 19.2 Balance of Payments Current Account Financial Account Global Should We Worry About the Large U.S. Current Account Deficit? 19.3 Exchange Rate Regimes in the International Financial System Gold Standard The Bretton Woods System How a Fixed Exchange Rate Regime Works Speculative Attacks APPLICATION: The Foreign-Exchange Crisis of September 1992 The Policy Trilemma APPLICATION: How Did China Accumulate US$4 Trillion of International Reserves? Monetary Unions Managed Float Global Will the Euro Survive? 19.4 Capital Controls Controls on Capital Outflows Controls on Capital Inflows 19.5 The Role of the IMF Should the IMF Act as an International Lender of Last Resort? 19.6 International Considerations and Monetary Policy Direct Effects of the Foreign Exchange Market on Monetary Policy Exchange Rate Considerations 19.7 To Peg or Not to Peg: Exchange-Rate Targeting as an Alternative Monetary Policy Strategy Advantages of Exchange-Rate Targeting Disadvantages of Exchange-Rate Targeting When Is Exchange-Rate Targeting Desirable for Industrialized Countries? When Is Exchange-Rate Targeting Desirable for Emerging Market Countries? Currency Boards Global Argentina’s Currency Board Dollarization SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS Part 7 Monetary Theory Chapter 20: Quantity Theory, Inflation, and the Demand for Money 20.1 Quantity Theory of Money Velocity of Money and Equation of Exchange From the Equation of Exchange to the Quantity Theory of Money Quantity Theory and the Price Level Quantity Theory and Inflation APPLICATION: Testing the Quantity Theory of Money 20.2 Budget Deficits and Inflation Government Budget Constraint FYI Modern Monetary Theory Hyperinflation APPLICATION: The Zimbabwean Hyperinflation 20.3 Keynesian Theories of Money Demand Transactions Motive Precautionary Motive Speculative Motive Putting the Three Motives Together 20.4 Portfolio Theories of Money Demand Theory of Portfolio Choice and Keynesian Liquidity Preference Other Factors That Affect the Demand for Money Summary 20.5 Empirical Evidence on the Demand for Money Interest Rates and Money Demand Stability of Money Demand SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS Chapter 21: The IS Curve 21.1 Planned Expenditure and Aggregate Demand 21.2 The Components of Aggregate Demand Consumption Expenditure FYI Meaning of the Word Investment Planned Investment Spending Government Purchases and Taxes Net Exports 21.3 Goods Market Equilibrium Solving for Goods Market Equilibrium Deriving the IS Curve 21.4 Understanding the IS Curve What the IS Curve Tells Us: Intuition What the IS Curve Tells Us: Numerical Example Why the Economy Heads Toward Equilibrium 21.5 Factors That Shift the IS Curve Changes in Government Purchases APPLICATION: The Vietnam War Buildup, 1964–1969 Changes in Taxes APPLICATION: The U.S. Fiscal Stimulus Package of 2009 Changes in Autonomous Spending Changes in Financial Frictions Summary of Factors That Shift the IS Curve SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS Chapter 22: The Monetary Policy and Aggregate Demand Curves 22.1 The Bank of Canada and Monetary Policy 22.2 The Monetary Policy Curve Why the Monetary Policy Curve Has an Upward Slope Shifts in the MP Curve Movements Along Versus Shifts in the MP Curve APPLICATION: Movements Along the MP Curve: The Rise in the Federal Funds Rate Target, 2004–2006 APPLICATION: Shift in the MP Curve: Autonomous Monetary Easing in Canada During the Global Financi 22.3 The Aggregate Demand Curve Deriving the Aggregate Demand Curve Graphically Factors That Shift the Aggregate Demand Curve FYI Deriving the Aggregate Demand Curve Algebraically SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS Chapter 23: Aggregate Demand and Supply Analysis 23.1 Business Cycles and Inflation Business Cycles Inflation 23.2 Aggregate Demand Components of Aggregate Demand Following the Financial News Aggregate Output, Unemployment, and Inflation Deriving the Aggregate Demand Curve Factors That Shift the Aggregate Demand Curve FYI What Does Autonomous Mean? 23.3 Aggregate Supply Long-Run Aggregate Supply Curve Short-Run Aggregate Supply Curve Price Stickiness and the Short-Run Aggregate Supply Curve 23.4 Shifts in the Aggregate Supply Curves Shifts in the Long-Run Aggregate Supply Curve Shifts in the Short-Run Aggregate Supply Curve 23.5 Equilibrium in Aggregate Demand and Supply Analysis Short-Run Equilibrium Aggregate Demand and Supply Analysis Using an Aggregate Output Index How the Short-Run Equilibrium Moves to the Long-Run Equilibrium over Time Self-Correcting Mechanism 23.6 Changes in Equilibrium: Aggregate Demand Shocks APPLICATION: The Bank of Canada Disinflation, 1981–1985 23.7 Changes in Equilibrium: Aggregate Supply (Inflation) Shocks APPLICATION: Negative Supply Shocks in the United States, 1973–1975 and 1978–1980 23.8 Conclusions from Aggregate Demand and Supply Analysis APPLICATION: AD/AS Analysis of the Great Recession of 2007–2009 in the United States APPLICATION: An AD/AS Analysis of the Covid-19 Recession in Canada SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS Chapter 24: Monetary Policy Theory 24.1 Response of Monetary Policy to Shocks Response to an Aggregate Demand Shock Response to a Supply Shock The Bottom Line: The Relationship Between Stabilizing Inflation and Stabilizing Economic Activity 24.2 How Actively Should Policymakers Try to Stabilize Economic Activity? Lags and Policy Implementation FYI The Activist/Nonactivist Debate over the Obama Fiscal Stimulus Package in the United States 24.3 Inflation: Always and Everywhere a Monetary Phenomenon 24.4 Causes of Inflationary Monetary Policy High Employment Targets and Inflation 24.5 Monetary Policy at the Effective Lower Bound Deriving the Aggregate Demand Curve with the Effective Lower Bound The Disappearance of the Self-Correcting Mechanism at the Effective Lower Bound APPLICATION: Nonconventional Monetary Policy and Quantitative Easing Liquidity Provision Asset Purchases and Quantitative Easing Management of Expectations APPLICATION: Abenomics and the Shift in Japanese Monetary Policy in 2013 SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS Chapter 25: The Role of Expectations in Monetary Policy 25.1 Lucas Critique of Policy Evaluation Econometric Policy Evaluation APPLICATION: The Term Structure of Interest Rates 25.2 Policy Conduct: Rules or Discretion? Discretion and the Time-Inconsistency Problem Types of Rules The Case for Rules FYI The Political Business Cycle and Richard Nixon The Case for Discretion Constrained Discretion Global The Demise of Monetary Targeting in Switzerland 25.3 The Role of Credibility and a Nominal Anchor Benefits of a Credible Nominal Anchor Credibility and Aggregate Demand Shocks Credibility and Aggregate Supply Shocks APPLICATION: A Tale of Three Oil Price Shocks Credibility and Anti-Inflation Policy Global Ending the Bolivian Hyperinflation: A Successful Anti-Inflation Program FYI Credibility and the Bank of Canada’s Victory over Inflation 25.4 Approaches to Establishing Central Bank Credibility Nominal GDP Targeting Appoint “Conservative” Central Bankers SUMMARY QUESTIONS APPLIED PROBLEMS DATA ANALYSIS PROBLEMS Chapter 26: Transmission Mechanisms of Monetary Policy 26.1 Transmission Mechanisms of Monetary Policy Traditional Interest-Rate Channels Other Asset Price Channels Credit View Why Are Credit Channels Likely to Be Important? FYI Consumers’ Balance Sheets and the Great Depression APPLICATION: The Great Recession 26.2 Lessons for Monetary Policy APPLICATION: Applying the Monetary Policy Lessons to Japan’s