Federal Reserve University of Phoenix ECO/212: Principles of Economics Thomas Anthony, MBA August 24, 2009 Federal Reserve has several tools that control money supply. Federal Reserve is the institution that’s sets the nation’s monetary policy, employs hundreds of economists to analyze economic developments in the United States and throughout the world (Mankiw, N. G., 2007). Monetary policy plays a big role in Federal Reserve. Central bank, which is also part of the Federal Reserve, is an important narrow bank in a nation’s monetary system. There are several effects of monetary policies on the economy’s production and employment that will be discussed in my study of Federal Reserve. Purpose and functions of money Money is the usage in everyday acts and discussions. For many people, money can have different meaning but to the economists, money contains an extremely explicit meaning. To economist, money is defined as common standard in disbarment for goods and services in the refund of debts. Surely, money is seen as a significant financial advantage that is frequently used in the economy. Whether it is bills or cash, coins and balances at banks are considered as money. The Function of money is to give a component of account which means that it is used to calculate the cost in the economy. We generally calculate the cost of goods and services in terms of money. Think how difficult it would be to buy in a store with hundreds of various things; deciding whether beef or shrimp is inexpensive. It would be very difficult if the cost of a pound of beef were estimated as 4 pounds of cooking oil and the price of a pound of shrimp were estimated as 8 pounds of peaches. Therefore, in order to fix this issue, money has to be established into the economy and have the entire cost estimate in terms of the components of money. Hence, we are capable to estimate the cost of all the goods with no trouble. As a result, we are able to understand that the usage of money as a component...