Federal Reserve Paper

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Federal Reserve Paper

Federal Reserve Paper Eco/212 Professor Sharma Kareisha Hawkins October 7, 2010

In this paper I will define the purpose and function of money. I will explain how the Federal Reserve’s manages the monetary system of the United States of America. In this paper I will also talk about the stated direction of recent monetary monetary policy in our nation. I will also explain what the effects of monetary policy are on production and employment in the economy.
In defining the purpose of money, one must simply define money’s function. Money has many purposes but one purpose of money is that it has a standard exchange. It has a unit of account and a store value. “A medium of exchange is an item that buyers give to sellers when they produce goods and services. (Mankiw 2007) An example of this is if a person goes to Mr.T’s bar-b-que, that person pays Mr.T for the bar-b-que they just ate. Money as a unit of account is a measurement used to understand the value of a good or service or debt. For example if a candy bar costs $1 and a TV costs $300, then the TV might be worth 300 candy bars, but it is measured in money. Money as “a store of value is an item that people can use to transfer purchasing power from the present to the future.” (Mankiw)
Federal Reserve is the central bank of the United States of America. The Federal Reserve Bank was created in 1913 to supervise our nation’s bank and to control the money supply of the nation. The Federal Reserve manages the nation’s monetary system with “three tools in its monetary toolbox: open-markets operations, reserve requirements, and the discount rate.” (Mankiw) In an open market operation the Federal Reserve will buy or sell government bonds to enhance or reduce the supply of money. When the Federal Reserve buys government bonds then the supply of money will increase…...

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