The Federal Reserve and Money
William L. Reed
University of Phoenix
Economics
212
Watson Ragin
April 20, 2010

The Federal Reserve and Money
“Money is the set of assets in the economy that people regularly use to buy goods and services from other people” and money serves three functions as a unit of account, a store of value, and as a medium of exchange. (Mankiw, 2006) A unit of account is unstable over time due to inflation and is unpredictable whereas a store of value must be able to be stored and retrieved at a later date similar to gold, silver, or real estate. Today’s money does not have a good store of value because most monies or currency are guaranteed as a medium of exchange by the government’s word which may also be unpredictable. The best description and function of money is that it is a good that acts as a medium of exchange for transactions between a buyer and a seller.
There are two basic types of money the first is commodity money that have intrinsic value because the money would value even if it were not used for money such as gold. Gold has intrinsic value because it can be used in other ways than using it for money. The other type of money is called fiat money that does not have any intrinsic value. It cannot be used for any other purpose than as a medium of exchange such as currency.
A central bank or reserve bank is an institution given the authority to manage exclusively a government’s spending and monetary system. The Federal Reserve System or bank is the central bank of the United States and is responsible for managing the country’s monetary system or policy, supervising and regulating the banking system, maintaining stability in the financial market, and provide financial services to depository institutions and the U.S. government.
The Federal Reserve manages the monetary system by setting reserve requirements on the amount