In order to comprehend money we have to start from a point where there is no money. In ancient times, Money was used by many nations and kingdoms and was in the form of many things, from cowrie shells to coins; in addition, rice, clothes and salts were used in trading. It is believed the first paper money was used between 1319-1331 in Japan and India and other countries follow suit..
Purpose and function of Money
The function of money is supposed to be making trade easier in all kinds of ways but the right purpose of money is this: convert wealth i.e. tangible things like food, water. shelters, music, health care into money and once material goods is transformed into monetary value it opens the doors for all kinds of new ideas and the habit of a nation changes.firstly the economy can be measured in terms of money.Secondly, money can be invested, in order to earn value in the future which will create a form of capitalism. Thirdly, a major industry that requires an immense amount of investment usually moves from its nominal reason of making money and lastly, the state can collect future taxes in advance by issuing usury.
How the Central Bank manages the monetary system
The Reserve Bank has two ways at its disposal to manage a nation’s monetary system? Firstly it can alter the interest rates on the money it gives to the banks as loans. A much higher interest rate will make money more costly, thus discouraging lending institutions to give out loans to the public. Reducing the rate of interest will cause the opposite outcome. The other tool the central bank has is the control to change reserve requirements i.e. this is the percentage lending institutions must keep in the total lending portfolio. This is whereby the Central bank lowers this requirement on the lending institution which increases their leverage and in return the banks will give out more money as loans (Blodgett, 2008).
Direction of recent monetary policy in the United States
The dominant influence on the U.S money supply comes from the guiding principle of the reserve bank, among these, the principal action consists of open market operations. Following the footsteps of their predecessors federal officials have always been careful in how they formulate and come up with policies that will ensure that the country is able to gain economic growth. Following the recent economic downturn, the federal exchange has been on the forefront in dealing with the issue by proposing a set of measures that will be used in the tackling of the problem. This has seen the number of jobs and the rise in GDP. Although not as fast as expected, the economy is slowly rising amid the uncertainty of the huge economic surplus that was implemented to the country’s major financial and manufacturing arms of the economy.
Policy Actions Taken to Confirm Federal Action
The Central bank mostly concentrates on developing the domestic markets. During the world recession that happens a few years back. A good example is free import to US from specified items like clothes from Africa and chosen few countries in the Asian continents in form of AGOA partnership (Miskin, 2003). Not many people are awre with how the federal exchange works and this means that the citizenry is often un aware of what effects that the policies affect their general decisions in the provision of both goods and services. What is not clear is how the Federal exchange is able to deliberate within the members and come up with solid decisions.
Effects of policies on production and employment
Since these policies came into effect, we have seen High employment rates being realized in the U.S, also economic growth enhances by investing in the technology in the production sector thus encourages savings supplies funds that can be drawn upon investment. We have also seen with this policies being in place the basic need are being realized like food,clothing,shelter and health insurance to the people (Blodgett, 2008).Employment opportunities are always gained when positive implementations are enacted. Also production of goods and provision of services is boosted when positive monetary policies are put in place. The role of policies is to ensure that a well sustained environment is in place for economic prosperity to foster.
This policy has a large impact on our daily lives and also alters velocity of “cash” meaning, when the policies are good monetary expansion becomes wide and production in the nation increases. But on the other hands when this policies fall on the negative part. We see cash is not available to the common citizen and monetary expansion becomes less vibrant and production decreases thus the work force is discouraged. Policies taken have great and adverse effects on the economic health of the world. Rates and other instruments are normally used in order to come up with better ways in which we can control inflation, deflation and other economic effects that citizens all around the world. Policies enacted if well implemented can save the nations against adverse effects. It is hence necessary that the people entrusted with this responsibility be a person of integrity and great hindsight on economic issues.
Blodgett, R. (2008). Principles of economics. Michigan: the University of Michigan
Kent, R. (2006). Money and Banking. Michigan: Rinehart.
Miskin, F. (2003). The economics of money, banking, and financial markets. London: Addison Wesley.