Banking and Financial Institutions

Question 3 • TX-Personal Financial Literacy and Economics

Why did the US Congress create the Federal Reserve System in 1913?

Answer

to establish a central bank where American citizens could deposit their money

to establish a central bank to store the money used by the federal government

to establish a central bank that would help smaller banks survive during economic crises

to establish a central bank that would provide loans for people who were denied them at local banks

Explanation

Congress created the Federal Reserve System in 1913 partly in response to financial panics, when bank failures and sudden demands for cash threatened the banking system. The Fed was designed to support banks by providing emergency funds and helping stabilize the economy, including smaller banks during crises. Therefore, the best choice is C, not a central bank mainly for personal deposits, government storage, or individual loans.

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