When the Fed was created in 1913,
a. it had no role in the management of the nation's economy.
b. it was restricted to providing emergency loans to financial institutions.
c. it adhered to a strictly supply-side policy focus.
d. its primary economic management tool was to reduce inflation by restricting the money supply.
e. it was far more likely to increase the money supply by lowering interest rates than to restrict it by raising them.
I would say It is B.
What say?
The correct answer is actually a combination of options B and E. When the Federal Reserve (Fed) was created in 1913, it was primarily established to provide emergency loans to financial institutions in times of financial crises, which corresponds to option B. However, over time, the Fed's role and responsibilities expanded to include the management of the nation's economy. One of the key tools the Fed uses to manage the economy is monetary policy, which involves influencing interest rates and the money supply. In order to stimulate economic growth, the Fed is more likely to increase the money supply by lowering interest rates, as mentioned in option E. So, the correct answer is a combination of options B and E.
When determining the correct answer, it's important to understand the role and functions of the Federal Reserve (the Fed) as it was created in 1913. The Federal Reserve Act was signed into law to establish a central banking system in the United States.
Observing the given options, choice B states that the Fed was restricted to providing emergency loans to financial institutions. This answer is not entirely accurate.
In reality, at its inception, the Fed had broader responsibilities beyond just providing emergency loans. While it did have the authority to lend to financial institutions in times of crisis, its main objectives were to stabilize the financial system, regulate banks, and manage monetary policy.
Therefore, the correct answer is not B.
To identify the correct answer, let's go through the other choices:
Option A states that the Fed had no role in the management of the nation's economy. This statement is incorrect as one of the main purposes of the Fed is to manage the nation's economy.
Option C states that the Fed adhered to a strictly supply-side policy focus. This statement is also incorrect as the role of the Fed is not limited to supply-side policies, but rather encompasses a range of monetary policy tools.
Option D states that the Fed's primary economic management tool was to reduce inflation by restricting the money supply. While the Fed does use monetary policy tools to manage inflation, it is not the sole focus or responsibility of the central bank.
Option E states that the Fed was more likely to increase the money supply by lowering interest rates than to restrict it by raising them. This statement aligns with the conventional monetary policy approach employed by the Fed. Lowering interest rates stimulates economic activity by encouraging borrowing and investment, which generally leads to an increase in the money supply. Conversely, raising interest rates can be used to restrict economic activity and decrease the money supply. Therefore, option E is the correct answer.
In summary, the correct answer is E: "It was far more likely to increase the money supply by lowering interest rates than to restrict it by raising them."