Money and Our Monetary System The monetary system in any eco

Money and Our Monetary System

The monetary system in any economy facilitates trade and allows people to trade more efficiently, as compared to a barter economy. In the United States, the monetary authority is the Federal Reserve System (also referred to as the Federal Reserve, or informally, as the “Fed”.) For this use the Fed’s website (http://www.federalreserve.gov/) when addressing the questions below.

What are the requirements for something to be considered money? Why does the dollar have value?

What does the money supply consist of and what are the respective amounts in the total money supply for the United States?

What are the primary functions of the Fed? What role does the Federal Open Market Committee (FOMC) play in our economy?

What role do the financial institutions (commercial banks and other institutions) play in our financial system?

What is meant by the term “fractional-reserve banking” in our system? What are the implications for consumers?

What are the tools available to the FED for controlling the money supply? Which are used most often? Which are most effective?

How does the money multiplier help to determine the effects of monetary policy?

What are the pros and cons of using monetary policy, as opposed to the use of fiscal policy, for implementing economic policies and practices?

Solution

Money is basically medium of exchange so for anything to be consideredd money there are three eligibility criterias

It is a currency which is backed by a stable and sound government, other than that dollar has value because it fulfills all the three criteria mentioned above. It is widely accepted which provides good strength to its value.

It consist of M1 and M2(the definitions and details are copied from fedreserve site)

Money Stock Measures. Billions of dollars.

There are four primar functions of Fed

The role of FOMC is to make monetary policy for federal reserve stsrem which it could implement in the U.S.

The most basic role of financial institutions is to provide circulate money in the economy and facilitate liquidity. It enables the flow of economic activities and helps in spreading the effects of implemented monetary policies.