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The Federal Reserve System

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Federal Reserve Paper

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Under the Federal Reserve act of 1913, the central bank of America was formed and eventually became to be known as the Federal Reserve. The Federal Reserve was created to help bank runs, and limit any financial panic that citizens would have concerning the economy. Over time the functions of the federal reserve has changed and grown, but the important role that it pays with America’s well being has not.(Mankiw, 2007).

This paper will define the function and purpose of money and how the central bank manages the nations monetary system. This paper will also look at the current monetary policy and the different actions that the Federal Reserve has taken to ensure their enactment.

A simple definition the word money would be anything that is used for the payment of services and goods. Most economics would say that it is “A medium of exchange that is widely accepted in payment for good and services for the settlement of debts.” Money begins with what is called commodity money, which is anything that has value such as trading a cow for eggs. This use to be considered bartering. In today’s society we use something that has been called “fiat” money, which is money that does not have any worth but has been given value by the government for it to be declared legal tender. The true purpose and function of money is to provide individuals throughout the world a way to buy and trade commodities (n.a., 2009).

The central bank or Federal Reserve manages the nations monetary system in America. Through different monetary policies the central bank is able to manage and control certain issues like over inflation, recessions, and ultimately depressions. Through the maximization of national employment, keeping the price of goods and services stable, and the moderation of interest rates. The people that are responsible

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