Monitary Policy Paper

Money is the great common denominator in the post industrial modern world. It is used as a means of measureing wealth, s common medium of exchange, and as a method of storing wealth for later use in the exchange of goods and services. It is derived from the ancient barter system, and in fact some monitary systems, such as that of ancient japan, actually used minted coins not as money per say, but as certificates of ownership to bushels of rice, which was the commodity by which all other comodoties were measured. Money provides a common scale for valuing everything. A means to enact a transaction even if only one party wants what the other has to offer, means for saving for future purchases and borrowing for large purchases. Money doesn't age, die, or grow stale as certain goods do.

The Federal Reserve is the Central Bank of the United States. Being the nation's money manager, the Federal Reserve implements monetary policy to manage the money supply and credit in the economy. If money and credit expand too rapidly, businesses cannot produce enough goods and services to keep up with increased spending. Prices (and eventually, market equilibrium) will rise, causing inflation. If the flow of money and credit contracts in too rapid a fashion, spending will dwindle, workers will lose their jobs as business spending declines, and a recession will roccur given time. As our nation's money manager, the Federal Reserve impliments monetary policy to attempt to balance these two extremes to keep prices steady, workers employed, and factories productive. The Federal Reserve has three tools by which it can control the money supply of the united states. It can change the interest rates on the money it lends to banks. A higher interest rate makes money more expensive, thus discouraging banks to borrow against the Federal Reserve. Lowering interest rates