Federal Reserve Monetary Policy
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Federal Reserve Monetary Policy
University of Phoenix
31 July 2009
Federal Reserve Monetary Policy
Money is accepted for payment or transfer of wealth from one person to another in trade for goods and services. Money has three functions in an economy; medium of exchange, a unit of account, and store value. These functions collectively separate money from other assets in the economy, such as stocks, bonds, real estate, and even baseball cards (Mankiw, 2007).
A medium of exchange is an item received for goods and services from buyer to seller. What should a medium of exchange possess? It should be transportable and divisible, have high market value in relation to volume and weight, and be recognizable and resistant to counterfeiting. A person should feel certain the seller will acknowledge their money for the item the business is selling because money is a generally acknowledged for medium of trade. As money flows from person to person in the economy, it facilitates production and trade, thereby allowing each person to specialize in what he or she does best and raises everyone’s standard of living (Mankiw, 2007).
A unit of account is a standard of measurement on how the market values goods, services, or assets. If a person borrows money from a bank, the amount of the loan repayment will be measured in dollars, not in an amount of goods and services. When economic value is recorded, the bank measures the use of money as the unit of account.
A store of value is an asset, money or other type of capital that is tradable and can be stored and retrieved over time. A store of value is the basic component of the economic system because it allows individuals to trade goods and services. When a seller accepts money for goods or services, the seller can store the money and become the buyer sometime in the future. The term wealth is used to refer to the total of all stores of value, including both money and nonmonetary assets...
University of Phoenix
31 July 2009
Federal Reserve Monetary Policy
Money is accepted for payment or transfer of wealth from one person to another in trade for goods and services. Money has three functions in an economy; medium of exchange, a unit of account, and store value. These functions collectively separate money from other assets in the economy, such as stocks, bonds, real estate, and even baseball cards (Mankiw, 2007).
A medium of exchange is an item received for goods and services from buyer to seller. What should a medium of exchange possess? It should be transportable and divisible, have high market value in relation to volume and weight, and be recognizable and resistant to counterfeiting. A person should feel certain the seller will acknowledge their money for the item the business is selling because money is a generally acknowledged for medium of trade. As money flows from person to person in the economy, it facilitates production and trade, thereby allowing each person to specialize in what he or she does best and raises everyone’s standard of living (Mankiw, 2007).
A unit of account is a standard of measurement on how the market values goods, services, or assets. If a person borrows money from a bank, the amount of the loan repayment will be measured in dollars, not in an amount of goods and services. When economic value is recorded, the bank measures the use of money as the unit of account.
A store of value is an asset, money or other type of capital that is tradable and can be stored and retrieved over time. A store of value is the basic component of the economic system because it allows individuals to trade goods and services. When a seller accepts money for goods or services, the seller can store the money and become the buyer sometime in the future. The term wealth is used to refer to the total of all stores of value, including both money and nonmonetary assets...