Question

A major function of the Federal Reserve System, established in 1913, was to _______.

• A. regulate the money supply.
• B. balance the budget.
• C. encourage industrial development.
• D. regulate the stock market.
• E. regulate foreign trade.

Answer 1

The correct option is A regulate the money supply.

A major function of the Federal Reserve System, established in 1913, was to regulate the money supply. The Federal Reserve controls inflation by managing credit, the largest component of the money supply. The Federals restricts credit by raising interest rates and making credit more expensive. That reduces the money supply, which curbs inflation. Ongoing inflation is like an insidious cancer that destroys any benefits of growth.