Question

1. What is the Federal Reserve System? Describe its structure and primary functions.

2. What is money? How much US money is there and by what measures?

Answer 1

1) The Federal Reserve System is the known as central bank of U.S.. It was founded by Congress in the year 1913 for making the country safer, more flexible, and more stable in it's monetary and financial system. The Federal Reserve System is inclusive of a two-part structure: a central authority called the Board of Governors in Washington, D.C., and a decentralized network of 12 Federal Reserve Banks located throughout the nation. FOMC sets the monetary policy which includes presidents of the Reserve Banks and members of the Board of Governors. The Federal Reserve has three primary functions: Monetary policy, banking supervision and financial services.

2) Money refers to any item or verifiable record that is widely used and accepted in transactions involving the transfer of goods and services from one person to another and repayment of debts in a specific country or socio-economic context

The three roles played by money.

1) Store of value: Money plays the role of the most liquid asset i.e. measures how easily assets can be spent to buy products and services. Money’s value can be retained over time and is a convenient way to store wealth.

2) Unit of account: Money acts as the common standard for measurement of the relative worth of goods and service.

3) Medium of exchange: People have requirements and wants that they cannot produce themselves. Thus the money can be used for buying and selling of products and services. If money doesn't exist goods would have to be exchanged through the process of barter system. Money mediates trade and makes markets more effective

There was an amount of $1.61 trillion approximately in circulation as of January 24, 2018, and out of this $1.56 trillion was in Federal Reserve notes.