Federal Reserve
- Submitted by: calisto
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- Category: English
- Date Submitted: 03/08/2010 07:15 PM
- Pages: 4
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Federal Reserve
The Federal Reserve and money go hand in hand. This essay will define the purpose and function of money and explain how the central bank manages a nation’s monetary system. The direction of recent monetary policy in the United States and at least one policy action that the Federal Reserve has taken to confirm that direction will also be presented as well. Lastly, this essay will explain the effects of monetary policies on the economy’s production and employment.
The purpose of money is to make trading easier. Money has three functions in the economy: It is a medium of exchange, a unit of account, and a store of value. These three functions together distinguish money from other assets in the economy, such as stocks, bonds, real estate, art, and even baseball cards. A medium of exchange is an item that buyers give to sellers when they purchase goods and services. A unit of account is the yardstick people use to post prices and record debts. A store of value is an item that people can use to transfer purchasing power from the present to the future.
The central bank is an institution designed to oversee the banking system and regulate the quantity of money in the economy. One institution is called the Federal Reserve aka The Fed. The Fed has two related jobs. The first is to regulate banks and ensure the health of the banking system. This task is largely the responsibility of the regional Federal Reserve Banks. In particular, the Fed monitors each bank’s financial condition and facilitates bank transactions by clearing checks. The Fed also acts as a bank’s bank. That is, it makes loans to banks when banks themselves want to borrow. When financially troubled banks find themselves short of cash, the Fed acts as a lender of last resort—a lender to those who cannot borrow anywhere else—to maintain stability in the overall banking system. The Fed’s second and more important job is to control the quantity of money that is made available in the economy,...
The Federal Reserve and money go hand in hand. This essay will define the purpose and function of money and explain how the central bank manages a nation’s monetary system. The direction of recent monetary policy in the United States and at least one policy action that the Federal Reserve has taken to confirm that direction will also be presented as well. Lastly, this essay will explain the effects of monetary policies on the economy’s production and employment.
The purpose of money is to make trading easier. Money has three functions in the economy: It is a medium of exchange, a unit of account, and a store of value. These three functions together distinguish money from other assets in the economy, such as stocks, bonds, real estate, art, and even baseball cards. A medium of exchange is an item that buyers give to sellers when they purchase goods and services. A unit of account is the yardstick people use to post prices and record debts. A store of value is an item that people can use to transfer purchasing power from the present to the future.
The central bank is an institution designed to oversee the banking system and regulate the quantity of money in the economy. One institution is called the Federal Reserve aka The Fed. The Fed has two related jobs. The first is to regulate banks and ensure the health of the banking system. This task is largely the responsibility of the regional Federal Reserve Banks. In particular, the Fed monitors each bank’s financial condition and facilitates bank transactions by clearing checks. The Fed also acts as a bank’s bank. That is, it makes loans to banks when banks themselves want to borrow. When financially troubled banks find themselves short of cash, the Fed acts as a lender of last resort—a lender to those who cannot borrow anywhere else—to maintain stability in the overall banking system. The Fed’s second and more important job is to control the quantity of money that is made available in the economy,...