Chapter 1
Why Study Money, Banking, and Financial Markets?
Before embarking on a study of money, banking, and financial markets, the student must be
convinced that this subject is worth studying. Chapter 1 pursues this goal in two ways. First, it
shows the student that money and banking is an exciting field because it focuses on economic
phenomena that affect everyday life. Second, using eight figures, this chapter encourages the
student to look at data that bear on the central issues in this field. An additional purpose of
Chapter 1 is to provide an overview for the entire book, previewing the topics that will be
covered in later chapters, and to indicate how the book will be taught.
MyLab Chapter 1
The ISLM Model
This MyLab chapter allows instructors to teach the ISLM model if they so choose. It lays out
the ISLM model step by step by deriving the LM curve and then putting the IS curve developed
in Chapter 21 and the LM curve in one diagram and explains why equilibrium occurs at their
intersection. The application in the middle of the chapter on the Economic Stimulus Act of 2008
livens up the material and should convince the student that Keynesian analysis does have
something to say about real-world phenomena.
The application on targeting money supply versus interest rates shows how the ISLM model has
something important to say about an issue raised in Chapter 17: Should the Fed conduct
monetary policy by targeting the monetary aggregates or interest rates?