Eco/212 Federal Reserve Paper

Week Five Federal Reserve Paper
Bret Abbott
ECO/212
Jan-31-2011
Ron Merchant

Week Five Federal Reserve Paper
      Money has been a functioning part of society since it began, allowing for the trade of goods and services between two parties. Money has four functions. It serves as a medium of exchange between two or more parties. Currently most societies use a single good as a medium of exchange. Using a single good as money gives societies a unit of account because they can attach a value to its goods. Money allows people to store value easily. Other assets can be used to store value but money offers more liquidity than most other assets. Money also gives us a standard of deferred payment by serving as a standard of deferred payment in borrowing and lending (Hubbard & O’Brian, 2010).
      After two unsuccessful attempts in the 1800s to establish a central bank Congress finally passed the Federal Reserve Act in 1913 to help balance the financial needs of the country. The central bank was put in place to manage the nation’s supply of money and credit. It operates at the center of the nation’s financial system keeping the nation’s businesses rolling by providing currency, coin, and payments services. The central bank also serves as the banker for the federal government providing financial services for the Department of the Treasury. The central bank also serves a supervisory role by regulating a large portion of the nation’s banking and financial systems as well as administering banking and finance-related consumer protection laws (Federal Reserve Bank of San Francisco, 2010).
      Recent expansionary monetary policies have begun to tighten at a slow pace because of the improved functioning of financial markets in the first half of 2010. The Federal Reserve is looking at ways to pull back its monetary policies as economic markets begin to move back toward equilibrium. By doing this the FOMC hopes to prevent the development of inflation pressures as the... [continues]

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