Question

When the Federal Reserve was created in 1913, what were its two primary purposes?

1) To regulate the financial sector of the US economy and maintain the gold standard
2) To print money (real bills) and lend only to banks committed to investment in "real" economic activity
3) To regulate the financial sector and be a "lender of last resort" to commercial banks
4) To maintain the gold standard and be a "lender of last resort" to commercial banks

Answer 1

The Federal Reserve was created in 1913 mainly to regulate the financial sector and act as a 'lender of last resort' to commercial banks, thus ensuring stability in the banking system and preventing financial panics.

Step-by-step explanation:

The Primary Purposes of the Federal Reserve Established in 1913

When the Federal Reserve was created in 1913, its two primary purposes were to regulate the financial sector and to serve as a "lender of last resort" to commercial banks. The necessity of a central bank was recognized to stabilize the financial system by influencing monetary policy and addressing financial panics that could lead to bank runs. By managing the discount rate, the Federal Reserve could influence borrowing trends, thereby affecting the supply of money and overall economic activity.

Moreover, its establishment was meant to ensure more stability in the banking system and prevent widespread financial crises. The Federal Reserve Act of 1913 mandated these roles, giving the Federal Reserve the responsibility to control lending by setting interest rates and providing a safety net to private banks.

Therefore, the correct answer to the student's question is option 3: To regulate the financial sector and be a "lender of last resort" to commercial banks.