Chapter 29 Review

I would give this chapter a 2/3 in difficulty. The Fed's Organization was a bit hard to understand initially due to lots of content, and it took a while for me to understand the purpose and significance of the money multiplier. The chapter began with the loose definition of money and the monetary system in general, and that part was easier to understand. 

In this chapter, Mankiw begins to talk about money and prices, in the long run, specifically focusing on the monetary system. Money is typically known to have a loose definition and can be seen as subjective and it is important to define what money actually is. Money is "the set of assets in an economy that people regularly use to buy goods and services from other people." There are tons of different functions of money. The first is the medium of exchange which is "an item that buyers give to sellers when they want to purchase goods and services." A unit of account is "the yardstick people use to post prices and record debts." A store of value is "an item that people can use to transfer purchasing power from the present to the future." Liquidity is "the ease with which an asset can be converted into the economy's medium of exchange." The book then moves on to the kinds of money. 


First is commodity money which is "money that takes the form of a commodity with intrinsic value." 
Second, there is fiat money which is defined as "money without intrinsic value that is used as money because of government decree." 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 4 years. The chairman is the lead member of the Federal Open Market Committee, which meets about every 6 weeks to consider changes in monetary policy. The Fed controls the money supply primarily through open-market operations: The purchase of government bonds increases the money supply, and the sale of government bonds decreases the money supply. 

The Federal Reserve has in recent years set monetary policy by choosing a target for the federal fund's rate, a short-term interest rate at which banks make loans to one another. As the Fed achieves its target, it adjusts the money supply.