The Federal Reserve

Money and the Federal Reserve
Jennifer Becker
Leander Woods

Money and the Federal Reserve
Nothing in live is free. When you go into a store with the intention of obtaining a new pair of shoes, the sales clerk working at the counter will be expecting money in return. Money is society’s form of exchange for goods and services. Before money was introduced as a form of exchange, the bartering system was used. In the bartering system, one good or service is exchanged for another. This system however, would be too difficult in today’s economy with so many different types of goods and services.
Money is defined as “the set of assets in an economy that people regularly use to buy goods and services from other people” (Mankiw, 2007, p. 642). Money has three functions in the economy: it is used as a medium of exchange, a unit of account, and a store of value. As in the shoe store example, money is used to exchange for a desired good or service. Money is also used to measure economic value and record debt. Finally, money is used as a transfer of purchasing power from the buyer to the seller. When purchasing that pair of shoes, you are giving up your money in exchange for the item therefore transferring the purchasing power to the store owner. Banks also play an important role in the monetary system.
The Federal Reserve is the central bank of the United States. Created in 1913, The Federal Reserve, or the Fed, oversees the banking system and controls the amount of money in circulation. The Fed is managed by the board of governors, consisting of seven members selected by the president to a fourteen year term. The chairman is the head to the board of governors but unlike the board members, the chairman’s term is only four years. The Federal Reserve Board is located in Washington D.C. and twelve other Federal Reserve Banks are located in major cities around the country. The Fed controls the quantity of money in circulation by the purchase and sale of...