Federal Reserve: Purpose Of Money

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ECO/212 February 3, 2012 Federal Reserve Paper What is the purpose of money? Let’s start with the root of the word; money comes from the word “moneta”, from the temple of Juno Moneta. This temple in Rome was the place where the imprint of ancient Rome was located. Money was believe to have four purposes, even thou now only three are listed, Originally the purposes money was believed to have where: a medium of exchange, a unit of account, a standard of deferred payment and a store of value. Now a days we only list three of them excluding a standard of deferred payment, but we can find this one attached to the other three and to regulations. Money is used as a medium of exchange when is it used as exchange for goods or services.…show more content…
We could use the Federal Reserve as an example, the Federal Reserve uses and controls three tools: open market operations, the discount rate, and reserve requirements. The first one, open market operations has a committee called the Open Market Committee, who is responsible of the operations of this monetary policy tool. This one is to be considered the principal tool of monetary policy, the Committee here as the responsibility over the sale of U.S. Treasury and federal agency securities. The other monetary tools, the discount rate and the reserve requirements, are managed by the Board of Governors of the Federal Reserve Systems. Now the discount rate refers to the interest rate charged to commercial banks and other collection institutions on loans received by the Federal Reserve lending facility. Federal Reserve banks offer different discounts, these are: primary credit, secondary credit and seasonal credit, each have their own rates. The last one of the monetary tools listed is reserve requirements; this last one refers to the amount of funds that a depository institution must hold in reserve against deposit liabilities. These are subject to change if it is decided by the Board of…show more content…
The FED monetary policy affects directly the cost and availability of money and credit; it also affects the demand and availability of labor. For example if a company is having a hard time keeping up due to the economic recession, and is getting harder for the company or individual to get credit due to changes on the policy of the FED, this will force the company to either lay off workers and if that does not help the company keep up, it might need to shut down. When a local company shuts down, not only is affecting labor but also production of a good or a service, giving space to external companies to come in or forcing the entry of a similar product form anther country. If the second one happens then we will be feeding someone else’s economy and not our own. But the FED can also help in a positive way, for example by keeping inflation at low, consumers and businesses don’t have to worry about high inflation. Reducing uncertainty in the marketplace, given a situation like this one in a “stable” economic environment, decisions won’t be postponed and businesses will rise investments and hire more people. We could definitely agree that the FED has a direct and indirect effect in production and labor. The economic policies might not affect the number of jobs, but the economy, if unstable,

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