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Why Study Money, Banking, and Financial Markets?: © 2005 Pearson Education Canada Inc
Why Study Money, Banking, and Financial Markets?: © 2005 Pearson Education Canada Inc
WhyStudyMoney,
Banking,and
FinancialMarkets?
WhyStudyFinancialMarkets?
1. Channelfundsfromsaverstoinvestors,thereby
promotingeconomicefficiency
2. Affectpersonalwealthandbehaviorofbusinessfirms
WhyStudyBankingandFinancialInstitutions?
1. FinancialIntermediation
Helpsgetfundsfromsaverstoinvestors
2. BanksandMoneySupply
Crucialroleincreationofmoney
3. FinancialInnovation
WhyStudyMoneyandMonetaryPolicy?
1. Influenceonbusinesscycles,inflation,andinterestrates
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Bond Market
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Stock Market
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Appendix: Definitions
AggregateOutput
GrossDomesticProduct(GDP)=Valueofallfinalgoodsandservicesproducedin
domesticeconomyduringyear
AggregateIncome
Totalincomeoffactorsofproduction(land,capital,labor)duringyear
DistinctionBetweenNominalandReal
Nominal=valuesmeasuredusingcurrentprices
Real=quantities,measuredwithconstantprices
AggregatePriceLevel
nominalGDP
GDPDeflator=
realGDP
$10trillion
GDPDeflator= =1.11
$9trillion
ConsumerPriceIndex(CPI)priceofbasketofgoodsandservices
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Appendix: Definitions
GrowthRatesandtheInflationRate
xt xt 1
Growth Rate
100
xt 1
$9.5 trillion $9 trillion
GDP Growth Rate
100 5.6%
$9 trillion
113 111
Inflation Rate
100 1.8%
111
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