Journaling of Chapter 29: The Monetary System

                Chapter 29 is titled as ‘The Monetary System’.  It deals with money and prices in the long run. It also describes what money is and develops how the Federal Reserve controls the quantity of money. First, we learn about the meaning of money. Money is the set of assets commonly used to buy goods and services. There are three functions of money: serves as a medium of exchange, serves as a unit of account, and serves as a store of value. Money can be divided into two fundamental types—commodity money and fiat money. Commodity money is money that has “intrinsic value.” Ex. Gold. Fiat money is money without intrinsic value. Ex. Dollar bills. In the United States, we calculate multiple measures of the money stock, two of which are M1 and M2. Next, we discuss the Federal Reserve System. The Federal Reserve (Fed) is the central bank of the United States. It is designed to oversee the banking system and regulate the quantity of money in the economy. We also learn that the public can hold its money as currency or demand deposits. Since these deposits are in banks, the behavior of banks affects the money supply. In the FYI, we also learn about federal funds rate which is the interest rate banks charge each other for short-term loans.

                Overall, this chapter helped me develop an understanding of what money is, what forms money takes, how the banking system helps create money, and how the Federal Reserve controls the quantity of money. I would give it a difficulty rating of 2 out of 3.