Elmhurst College
Center for Business and Economics


Money and Banking (Economics 410)
Dr. Siaw-Peng Wan
307 Lehmann Hall (617-3112)
  Spring 1998
MW 9:15-10:15 a.m.
Th 10-11 a.m.
or by appointment


Course Objectives: This course is designed to analyze the impact of money on some of the economy’s key variables such as interest rates, inflation, and the banking industry. In addition, we will also examine the roles commercial banks and the Federal Reserve System play in the process of money creation, i.e. the U.S. monetary policies.
Prerequisite: Economics 211 (Introduction to Macroeconomics)
Economics 212 (Introduction to Microeconomics)
Recommended Textbook: Mishkin, Frederick, The Economics of Money, Banking, and Financial Markets, 5th edition, Harper Collins.
Recommended Readings: 1. The Wall Street Journal
2. The Economist
3. Business Week


Grading: Exam 1 25% Grading Scale*: 90-100% A
  Exam 2 25% 80-89% B
  Homework 20%     70-79% C
Special Project 10% 60-69% D
  Spreadsheet/Internet 20% below 59% E
Assignments *It will be adjusted if necessary


Important Dates to Remember:    
Exam 1   March 13
Exam 2   May 22, 10:30-12:30 p.m.

Textbooks and Lecture Notes

Due to the high cost of textbooks nowadays, it is up to the student to decide if he/she needs to purchase the textbook for this course. It is important to note that the materials covered in class come from different sources and do not all come directly from the textbook. The textbook is however strongly recommended for students that want to be prepared for class or for students that need a source of reference.

The lecture notes for the class will be available on the course web site (www.elmhurst.edu/~cbe/). The lecture notes will available at the beginning of the semester. However, since they are still a work in progress, additional materials will be added to the lecture notes throughout the semester. The supplementary notes will be clearly identified on the web site.

Course Web Site

A web site for the Money and Banking course has been created for this class. To access this web site, you need to have internet access (through school or home) using preferably Netscape 3.0.

Information such as syllabus, lecture notes, assignments, practice tests, etc. can be found on this web site. In addition, Money and Banking related web links will also be provided that you will find helpful for some of your assignments.


There are certain basic skills a student is expected to possess or acquire for this course:

1. Math skills: A student is expected to know the most basic math skills such as high school algebra for this course. If you feel that you are not proficient in such skills, it is highly recommended that you brush up on them as soon as possible.
2. Spreadsheet skills: A student is expected to know the most basic spreadsheet skills such as entering data, creating new columns and rows, creating basic formulas, etc. There will be several spreadsheet assignments throughout the semester that a student will need to use such skills.
2. Internet skills: Knowing how to use the internet for research purposes has become an increasingly important skill for today’s students. You are expected to acquire a variety of internet skills such as sending e-mail, performing searches using search engine, etc. by the end of the semester.

If you plan on using the computer labs on campus, please make sure that you have a log-in disk with you. You can purchase a log-in disk in the Media Center (located in the Computer Science Center).

And if you plan on using e-mail, you need to request for an e-mail account at the Computer Resource Center (also located in the Computer Science Center). However, if you already have an e-mail account with the college, with your workplace, or with an online service such as American Online, then you can simply use those e-mail accounts.

Class Policies

1. Attendance is expected for this course, though not strictly enforced. Your textbook serves mostly as a reference for this course, and a lot of the class materials are drawn from other sources. As a result, you might not be able to understand some of the materials if you miss classes.

2. Participation is essential in the classroom. Even though a student’s grade is not dependent on classroom participation, it will become a factor when making decision on borderline cases.

3. We will be going over examples in class and many of them required the use of a calculator, so remember to bring one with you every time. It is also recommended that you bring a ruler to class for drawing the graphs.
It is recommended that you have a binder which you can use to store all the handouts (which contain the examples) handed in class.

4. You will be given a one week notice about the quizzes. The quizzes can be either in-class or take-home.

5. You need to provide the professor with acceptable excuses if you are going to miss any of the quizzes (3 day notice) and exams (1 week notice). Failure to do so will not enable you to make up for the missed quizzes and exams.

6. The Elmhurst College Student Code of Academic Conduct and Honesty outlined in the E-Book is strictly enforced in this class. Each student is responsible for knowing the penalties for academic dishonesty.

Course Outline (subject to change as deemed necessary):
*L (Lecture Notes) and H (Handouts)

Topic Readings Textbook Guideline
1. Introduction    
  • i. What is money?
  • L Chapter 3
  • ii. What is banking?
  • L Chapter 1
    2. Historical Aspect of Money L, H  
    3. Money and Interest Rate    
  • i. Definitions of interest rate
  • L, H Chapter 4
  • ii. Portfolio choice: Factors affecting interest rate
  • L Chapter 5
  • iii. Determining the equilibrium interest rate
  • L, H Chapter 6
  • iv. Risk and term structure of interest rate
  • L Chapter 7
    4. Supply of Money    
  • i. The basics of money supply
  • L, H  
  • ii. Creation of money
  • L Chapter 15, 16 and 17
    5. Federal Reserve System and Its Monetary Policies    
  • i. Overview of the structure and function of the Fed
  • L, H Chapter 18
  • ii. Instruments of the Fed
  • L, H Chapter 20
    • a. Open market operation
    • b. Discount rate
    • c. Reserve requirement
  • iii. Targets and goals of the Fed
  • L Chapter 21
  • 6. Demand for Money
  • L Chapter 23
  • i. Quantity theory of money
  • ii. Keynes’s liquidity preference theory of money
    • a. Transaction motive
    • b. Precautionary motive
    • c. Speculative motive
    7. IS-LM Model: Determining Interest Rate and Real Income L Chapter 24
    8. Monetary and Fiscal Policies in the IS-LM Model L Chapter 25
    9. Relationship Between an IS-LM Model and an AD-AS Model L Chapter 26
    10. The Impacts of Money on Inflation and Unemployment L Chapter 28