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Federal Reserve Paper

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ECO/212

February 3, 2012

Federal Reserve Paper

      What is the purpose of money? Let’s start with the root of the word; money comes from the word “moneta”, from the temple of Juno Moneta. This temple in Rome was the place where the imprint of ancient Rome was located. Money was believe to have four purposes, even thou now only three are listed, Originally the purposes money was believed to have where: a medium of exchange, a unit of account, a standard of deferred payment and a store of value. Now a days we only list three of them excluding a standard of deferred payment, but we can find this one attached to the other three and to regulations.
      Money is used as a medium of exchange when is it used as exchange for goods or services. Money also serves as a unit of account, a standard numerical unit of measurement of value of goods, services and other transactions. As for the store of value, money can be saved stored and retrieved. Even when money is saved we can still count it and measured. Now by understanding the origin of money and the functions of it, we can say that the purpose of money is to facilitate our trading, accounting, saving and paying process. It serves to make life more convenient.
      The monetary policy refers to the actions taken by the central bank to influence the availability and cost of money and credit to help promote national economic goals. We could use the Federal Reserve as an example, the Federal Reserve uses and controls three tools: open market operations, the discount rate, and reserve requirements. The first one, open market operations has a committee called the Open Market Committee, who is responsible of the operations of this monetary policy tool. This one is to be considered the principal tool of monetary policy, the Committee here as the responsibility over the sale of U.S. Treasury and federal agency securities. The other monetary tools, the discount rate and the reserve requirements, are managed by the...

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