Progressive Movement Practice Exam

What is a major function of the Federal Reserve System?

1. Suggest ways for the Federal Government to save money

2. Lend money to state governments

3. Manage the supply of currency and bank credit

4. Issue United States Savings Bonds

The correct answer is: Manage the supply of currency and bank credit

The Federal Reserve System plays a crucial role in managing the nation's monetary policy, which is primarily achieved through the management of the supply of currency and bank credit. This involves regulating interest rates and overseeing the availability of money within the economy to ensure stable economic growth, control inflation, and foster employment. By adjusting the money supply—either increasing it to stimulate economic activity or decreasing it to curb inflation—the Federal Reserve influences overall economic conditions. This function is essential for maintaining the stability of the financial system and promoting confidence in the U.S. economy. The other options do not align with the primary functions of the Federal Reserve. The system does not serve as a direct source for lending money to state governments or issue savings bonds, which are handled by the U.S. Treasury. Additionally, while the government may seek financial savings advice, it is not the Federal Reserve's role to suggest savings strategies for the federal government.