Progressive Movement Practice Exam

What was the primary purpose of the Federal Reserve System, created in 1913?

1. Balance the federal budget

2. Regulate the amount of money in circulation

3. Serve as a source of loans for farmers

4. Solve the financial problems of the Great Depression

The correct answer is: Regulate the amount of money in circulation

The establishment of the Federal Reserve System in 1913 primarily aimed to regulate the amount of money in circulation. This was crucial for addressing the widespread financial instability that characterized the United States in the preceding years, marked by bank failures and economic panics. The Federal Reserve was designed to serve as a central bank that could manage monetary policy effectively, thereby influencing interest rates and controlling inflation. By managing the money supply, the Federal Reserve seeks to ensure financial stability and foster economic growth, making its primary purpose fundamentally linked to the management and regulation of currency circulation. While balancing the federal budget, providing loans to farmers, and addressing the financial crisis of the Great Depression were important economic considerations, these functions were not the primary purpose for which the Federal Reserve was created. The focus on regulating the money supply remains a cornerstone of its operations to this day.