Federal Reserve Paper

FEDERAL RESERVE PAPER 1

Federal Reserve Paper

Letitia Williams

Eco/212

April 26, 2010

Marina Bills, PhD

FEDERAL RESERVE PAPER 2

.Federal Reserve Paper

The majority of people know there is an administrative organization that guards the economy and puts polices into play so the country can run efficiently (Investopedia, 2010). In the United States, the Federal Reserve (Fed), is the central bank in charge of regulating the economy's money supply and watching over the banking system (Mankiw, 2007). The Fed dictates economic and monetary policies that have profound impacts on individuals in the U. S. and around the world (Investopedia, 2010).

Money is assets used on a regular basis by people to purchase goods and services from others. Therefore, the purpose of money is to purchase goods and services. There are three functions of money in the economy: 1)medium of exchange-what purchasers give to sellers when they want to make a purchase of goods and services 2)unit of measure-yardstick used to record prices and post debts 3)store of value-used in transferring purchasing power to the future from the president (Mankiw, 2007).

The central bank manages a nation’s monetary system in many ways. The United States has to have someone control money because money cannot control itself. The livelihood of the economy is money and credit, facilitating commerce, jobs, and the growth of businesses. The expansion of money and credit too quickly can lead to the reduction of goods and services from businesses because money is being spent too vigoursly. Prices will possibly increase, leading to inflation. If money flow and credit moves too fast, the spending of consumers and the normal business activities perhaps will stop and employees' jobs may be in jeopardy, resulting in a possible recession. As our country's manager of money, the Federal Reserve runs the monetary policy in an attempt to even out prices, keep job security, and keep factories in...