Federal Reserve

Federal Reserve Paper

In any economic entity money is an important element in trade between buyers and sellers. In earlier times people used the barter system as a means of trading goods or services, and in modern times money is used and had a purpose and function. The Federal Reserve manages the nation’s monetary system using monetary policy tools. Additionally, the Federal Reserve enacts policies to corroborate management of the nation’s monetary system, and these policies can affect the economy’s production and employment.

Economists define money as an asset individuals and firm use as a medium of exchange accepted in compensation for goods or services and in resolution of debts (Hubbard & O’Brien, 2010). In trading between buyers and sellers if money is not used or available the buyers and sellers would have to use the barter system or exchange one good or service for another. The goods or a service with value independent of its use is commodity money. Money has made trading of goods or services easier because money permits firms to have higher productivity and specialization (Hubbard & O’Brien, 2010).

There are four functions of money in any economy; money is a unit of account, store of value, standard of deferred payment, and a medium of exchange (Hubbard & O’Brien, 2010). Money is a unit of account because each good has one price and gives the sellers and buyers a method of determining value for the good or service. Money provides a store of value for a service or good because the money left to spare after purchasing the good or service is for future use. Not only can money be a store of value but also money functions as a standard of deferred payment in lending and borrowing. Furthermore, money functions as a medium of exchange between the buyer and seller because money is accepted in trade of a good or service.

The Federal Reserve is a government agency the serves as the nation’s central bank and issues currency. The Federal Reserve manages the...