Progressive Movement Practice Exam

What was the primary purpose of establishing the United States Federal Reserve System?

1. Provide loans to industrialists

2. End the Great Depression

3. Provide for a balanced budget

4. Regulate the money supply

The correct answer is: Regulate the money supply

The primary purpose of establishing the United States Federal Reserve System was to regulate the money supply in the economy. The Federal Reserve was created in 1913 in response to a series of financial panics, particularly the Panic of 1907, which highlighted the need for a central banking system that could manage monetary policy more effectively. By regulating the money supply, the Federal Reserve aims to promote economic stability and manage inflation. This involves adjusting interest rates and using various tools to influence the amount of money circulating in the economy. A stable money supply helps to achieve other economic goals, such as fostering conditions for job creation and ensuring that the banking system operates efficiently. The other options reflect misconceptions about the Federal Reserve's role or focus on specific outcomes that are too narrow. While the Federal Reserve can influence conditions that may help prevent economic crises and support broader economic health, its foundational purpose centers on managing the money supply rather than directly providing loans to industrialists, directly ending the Great Depression, or ensuring a balanced budget.