Federal Reserve Paper

Topics: Monetary policy, Federal Reserve System, Central bank Pages: 3 (948 words) Published: July 19, 2010
Federal Reserve Paper
Corrin Watson
ECO/212
July 3, 2010
Mohamed BenSenia
Federal Reserve Paper
Money is controlled by the central bank, and they determine the value of the US dollar. Money is defined as the assets that people are generally willing to accept in the exchange of goods and services or for payment of debts (Hubbard & O'Brien, 2010). The nation’s central bank is called the Federal Reserve Bank, and different tools are used to control and manage the monetary policy. For this is the responsibility of the Federal Reserve Bank. The Federal Reserve Bank is always evaluating the economic solidity and making obligatory changes to the monetary policy in an attempt to stabilize the economic health. Money was generally created to replace the barter system and is used habitually in the world’s economy in exchange of goods and services. Money is used to perform four functions that are medium of exchange, unit of account, store of value, and standard of deferred payment. Medium of exchange is activated when sellers are willing to accept items in exchange of goods or services. The economy is more resourceful when one item serves as medium of exchange, such as the US dollar. Unit of account is normally used in the barter system, where each good has different prices. Once a single good is used as money, each good has one price as opposed to different prices. Unit of account gives buyers and sellers a way of measuring value in terms of money. Store of value is when money allows value to be simply stored. Conversely, it is not the only store of value. Any asset embodies store of value and value is not solidified and may increase in the future. Standard of deferred payment consists of money facilitating exchange at a given moment by providing medium of exchange and unit of account. Furthermore, it can facilitate exchange over time by providing store of value and standard of deferred payment. Money is a considerably large variable in the...

References: Bernanke, B. S. (June 16, 2010). The Squam Lake Report: Fixing the Financial System. Retrieved from http://www.federalreserve.gov/newsevents/speech/bernanke20100616a.htm
Hubbard, R., & O 'Brien, A. (2010). Economics (3rd ed.). Boston, MA: Pearson Hall.
www.federalreserve.gov. (February 24, 2010). Monetary Policy Report to the Congress. Retrieved from http://www.federalresserve.gov/monetarypolicy/mpr_20100224_part1.htm
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