Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc. WHAT’S NEW: The discussion of the reserve ratio has been expanded. LEARNING OBJECTIVES: By the end of this chapter, students should understand: what money is and what functions money has in the economy. what the Federal Reserve System is. how the banking system helps determine the supply of money. what tools the Federal Reserve uses to alter the supply of money. KEY POINTS: 1. The term money refers to assets that people regularly use to buy goods and services. 2. Money serves three functions. As a medium of exchange, it provides the item used to make transactions. As a unit of account, it provides the way in which prices and other economic values are recorded. As a store of value, it provides a way of transferring purchasing power from the present to the future. 3. Commodity money, such as gold, is money that has intrinsic value: It would be valued even if it were not used as money. Fiat money, such as paper dollars, is money without intrinsic value: It would be worthless if it were not used as money. 4. In the U.S. economy, money takes the form of currency and various types of bank deposits, such as checking accounts. 5. The Federal Reserve, the central bank of the United States, is responsible for regulating the U.S. monetary system. The Fed chairman is appointed by the President and confirmed by Congress every four years. He is the lead member of the Federal Open Market Committee, which meets about every six weeks to consider changes in monetary policy. 27 THE MONETARY SYSTEM 2 Chapter 27 — THE MONETARY SYSTEM Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc...
