Running head: FEDERAL RESERVE PAPER � PAGE \* MERGEFORMAT �1� FEDERAL RESERVE PAPER � PAGE \* MERGEFORMAT �4�
Federal Reserve Paper
University of Phoenix
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Federal Reserve Paper
Introduction
This paper will give definition to the purpose and function of money. It will explain how the Federal Reserve manages the monetary system of the United States. This paper will also outline the stated direction of recent monetary policy in this nation. It will list at least one policy action taken by the Federal Reserve confirming that direction. And, this paper will give explanation to the effects of monetary policies on production and employment within the economy.
a. Define the purpose and function of money.
In defining the purpose of money, one must simply define its functions. There are three functions of money. First of all, money is a medium of exchange. It is also a unit of account, and a store of value.
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Description: Newspaper clipping USA, Woodrow Wilso..."A medium of exchange is an item that buyers give to sellers when they purchase goods and services." (Mankiw, 2007, p. 643) For example, when a person goes to Joe's Diner for a hamburger and shake, he pays Joe with money for the meal he just ate. Money as a unit of account is a measurement used to understand the value of a good or service or a debt. For instance, if a Pepsi costs $1 and a television costs $200, the TV may be worth 200 Pepsis, but it is measured in dollars. Money as "a store of value is an item that people can use to transfer purchasing power from the present to the future." (Mankiw, p. 643) When a person buys gasoline today, the store owner can hold that money to purchase a new putter next week.
b. Explain how the central bank...