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Federal Reserve Paper

Jess Marie Sotto

ECO/212

December 11, 2011
Kalamogo Coulibaly

Federal Reserve Paper

The Federal Reserve is an important component of the nation’s financial system. The fed also known as the central bank make crucial decisions to ensure that the country’s macroeconomic policy objectives are met. The fed handles financial topics such as government spending, taxes, interest rates and money. The following is a discussion of the purpose and function of money, monetary system, and current policy actions.
The Purpose and Function of Money Money functions as a medium of exchange, a unit of account, store of value, and a standard of deferred payment. Medium of exchange means that sellers will sell goods or services to people if they are willing to accept money in return. Money also functions as a unit of account which means that it is used to measure the value of the economy. Money as store of value means that because of money's liquidity, it is easier to save it for future use in comparison to other assets. Money as a standard of deferred payment means that money can be used in borrowing and lending such as credit cards, loans etcetera (Hubbard & O'Brien, 2010, p. 827).
The Nation’s Monetary System The nation’s central bank also know as the Federal Reseve manages the nation’s monetary system through the implementation of financial policies (Hubbard & O'Brien, 2010, p. 790). Monetary policies are action’s the Federal Reserve do to manage the nation’s money supply and interest rates. Monetary policies are also done to ensure the flow of funds from lenders to borrowers (Hubbard & O'Brien, 2010, p. 790). Monetary policies are important to reach the Federal Reserve goals of price stability, high employment, stability of financial markets and institutions and economice growth (Hubbard & O'Brien, 2010, p. 860).

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