In the United States today, money comes in various forms: currency, demand deposits, time deposits, and plastic money. The narrowest commonly used measure of money, known as M1, consists of currency and demand deposits. M2, a broader measure of the money supply, includes time deposits as well.
The most obvious form of money is currency – bills and coins. At any given time, most adults have about $100 in cash, for a total of $18 billion, or 12 percent of all the currency supposedly in circulation. Businesses also keep cash on hand, and children hoard some in their piggy banks. Part of the rest of currency is no doubt circulating in the underground economy. And some has made its way oversea.
Cashiers’ checks, money orders, and travelers’ checks are also considered currency. They may be purchased from a bank for their face value, plus usually a small additional fee. The main difference between these checks and a customers’ checks is that checks purchased from a bank are payable from the funds are usually acceptable as a form of payment in situations in which the individual is not personally known.
Although cash has it advantages, it is difficult to imagine business functioning without the convenience of checks. With the checking accounts of today, a customer deposits money in an account and is given a book of checks. Each check the customer writes and signs is, in effect, an order to the bank to release on demand the specified amount from the account and to the payee, the business or person indicated. (Of course, the bank may not honor the check if the account is overdrawn). Thus the origin of the term demand deposit.
The lion’s share of the money supply is held in the form of time deposits, such as savings accounts, money market funds, and certificates of deposit. Time deposits all pay interest, but they restrict the owner’s right to withdraw funds on short notice. Unlike currency and demand deposits cannot be used as a medium of exchange.
The typical adult generally carries about seven credit cards – national cards like Visa, MasterCard, and American Express, as well as gasoline and department store cards. Although credit cards are not officially considered money, they do function as a medium of exchange. For buying things, they are every bit as handy as cash or checks – except that they are more expensive.
Consumer use of credit cards has increased considerably in recent years, partly because lending institutions have been pushing these profitable devices. Attracted by fat annual fees and high interest rates, some banks have issued credit cards without paying much attention to the applicants’ creditworthiness.
Federal Reserve's mission and functions
The Federal Reserve System, commonly known as the Fed, is a network of the 12 regional banks that controls the country's banking system. Each bank serves as a central bank for its district and is owned by the participating commercial banks within its region.
The Fed's main job is to set and implement monetary policy, which is a set of guidelines for handling the nation's economy and the money supply. It aims to make certain that enough money and credit are available to allow the economy to expand. At the same time, it must be careful not to release too much money and credit into the economy at any one time, because a surplus has historically produced inflation. In attempting to foster steady and stable economic growth, the Fed works with the President and Congress, who are responsible for fiscal policy.
The Federal Reserve System has three major functions: regulating the money supply, supplying currency, and clearing checks.
The Fed uses monetary policy to try to stimulate growth and employment while keeping down inflation. These efforts involve many complicated problems. For example, when the money supply increase and there is more money to go ground, banks can charge lower interest to borrowers. But an increased money supply may lead to more spending and thus more inflation. To implement its monetary policy, the Fed has four basic tools: reserve requirements (the Fed requires all member banks and financial institutions to set aside reserves, sums of money equal to a certain percentage of their deposits. The percentage of deposits that banks must keep o hand is called the reserve requirement); the discount rate (banks can obtain extra funds to lend to their customers by borrowing from their regional Federal Reserve bank, which in a sense is banker to the banks. The interest rate that the Fed charges member banks for loans is called the discount rate); open-market operations (activity of the Federal Reserve in buying and selling government bonds on the open market); and selective credit controls (the Fed's power to set credit terms on various types of loans).
Supplying currency function helps keep the financial system running smoothly. For example, individual Federal Reserve banks are responsible for providing member banks with adequate amounts of currency.
Banks may use the Fed's check-clearing service to clear checks drawn on banks outside their Federal Reserve districts. For example, a check written against an account in a Chicago bank may be deposited in a bank in Atlanta. The Atlanta bank forwards the check to the Federal Reserve Bank in Atlanta, which collects the funds from the Chicago Federal Reserve bank and credits the accounts of the local bank. For a high-value check, the Atlanta bank may do a ”direct send” - that is, it may forward the check to the Federal Reserve Bank in Chicago.
2011:
The American economy added just over 200,000 jobs in March, and the unemployment rate has fallen to 8.8%.
To reduce the unemployment rate of 8.8% in America, it was needed to create over 200,000 jobs in March.
The fact is that the adding of over 200,000 jobs in March by the American economy reduced unemployment by 8.8 %.
The unemployment rate has fallen to 8.8% when the American economy added over 200,000 jobs in March.
2016-04-06 02:45:30
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