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Federal Reserve
Suzanne Grimaldi
Economics 212
Alex
March 2, 2009
Define the Purpose of Money
Money is the set of assets in an economy that people regularly use to buy goods and services from other people or firms. Money has three main functions, it is the medium of exchange, a unit of account and the store of value.
Money is used as the medium of exchange, in that it is what the buyers give to the sellers when they are purchasing the goods and services.
Money is called the unit of account as it is the yardstick people use to post prices and record debts.
Store of Value is an item that people use to transfer purchasing power form present to future
The Central Bank
The Central Bank is an institution designed to oversee the banking system and regulate the quantity of money in the economy.
The first set of tools, which are closely tied to the central bank's traditional role as the lender of last resort, involve the provision of short-term liquidity to banks and other depository institutions and other financial institutions. Because bank funding markets are global in scope, the Federal Reserve has also approved bilateral currency swap agreements with 14 foreign central banks. These swap arrangements assist these central banks in their provision of dollar liquidity to banks in their jurisdictions.
A second set of tools involve the provision of liquidity directly to borrowers and investors in key credit markets. The Commercial Paper Funding Facility, the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, and the Money Market Investor Funding Facility fall into this category. In addition, the Federal Reserve will soon implement the Term Asset-Backed Securities Loan Facility. All of the programs are described in detail elsewhere on this website.
As a third set of instruments, the Federal Reserve has expanded its traditional tool of open market operations to support the functioning of credit markets through the purchase of...