Federal Reserve

The Federal Reserve

Nieasha Sutton

ECO/212

June 9, 2010

Joseph Krupka

The Federal Reserve

When other countries visualize the United States, the first illusion is usually a country filled with wealth. Although, there is a tremendous amount of wealth in the United States, the country’s economy has recently suffered. Even with the downfall of the United States economy, the country still relies on an agency that is reliable and responsible for regulating the system. This agency is The Federal Reserve (Fed), which is the central bank of the United States that upholds the duties of overseeing and regulating the quantity of money in the economy. This paper will take a closer look inside the Fed’s monetary policy and overall system for which it operates.

Money is a word known to man; no matter the language it’s spoken. According to Mankiw, money is defined as “the set of assets in an economy that people regularly use to buy goods and services from other people” (Mankiw 2007). The purpose of money is to make trade easier for goods and services. Money also has three functions in the economy. The first function is medium exchange, which is the most popular function of money. It is an intermediary that a purchaser gives to sellers when purchasing goods and services. For example, when an individual purchases food from a market, the market gives the food in return for money. A unit of account is considered a monetary unit of measurement used to post cost and record debts. It gives useful meaning to profits, losses, liability and assets. The final function is a store value, which is a form of exchange such as money, currency, or financial capital. These forms must be able to be saved and retrieved at a later date and must be useful when retrieved.

With the consumption of money, the Federal Reserve must have a reliable way to manage the monetary system. It is run by a board of governors, in which the president appoints seven members and is...