Eco 212

Running head: U.S. Federal Reserve Paper

U.S. Federal Reserve Paper

Adrian Gadsden

University of Phoenix

ECO 212

Jonna Noe

August 16, 2009

U.S. Federal Reserve Paper

The purpose of this report is to discuss the U.S. Federal Reserve and its purpose. This paper will discuss the purpose and function of money and how central banks manages a nation’s monetary system. This report will also outline recent monetary policies in the United States and explain the effects these policies have on the economy employment as well as its production.

Define the purpose and function of money.

Money is defined as a medium that can be exchanged for goods and services and is used as a measure of their value on the market(www.insourceaudit.com). In normal terms money is anything that can be received as compensation for commodities and services. Each country has their own unique money system. The three major types of money systems are commodity, fiat and fiduciary.

Commodity money is money that in non-monetary but uses the same monetary value. Gold, silver and tobacco are a few examples of commodity money. The other type of money is Fiat money or paper money. Fiat money is, according to law, the type of money that must be accepted and as a form of exchange. The third type of money, Fiduciary, is the type of money that banks pledge their word to compensate.

The function of money

Money has many functions but the four major functions are as a medium of exchange, a store of value, deferred payment and a unit of account. The medium of exchange is what is given in exchange for something else. A store of value is what people keep in order to keep their wealth. This is similar to the exchange factor but materialistic possessions such as jewelry or land would be used instead of money. The deferred payment plan is another function of money that allows payments to made at date in the future.

How does the central bank manage the monetary system?

The central bank, also...