SAT Subject US History Practice Question 1085: Answer and Explanation

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Question: 1085

4. The passage of the Federal Reserve Act was important because it

A. made up for revenue lost by the Underwood Tariff.
B. centralized financial power in one city—New York.
C. allowed the president to set interest rates.
D. created a mechanism to regulate the money supply.
E. nationalized banks in the United States.

Correct Answer: D

Explanation:

The main purpose of the Federal Reserve Bank (the Fed) is to regulate the money supply, primarily by raising or lowering its interest rate for loaning money. The federal income tax made up for revenue lost by tariffs. The Federal Reserve Act was also designed to decentralize financial power. The president appoints the head of the Fed but cannot set interest rates or manipulate the bank. And banks have never been nationalized in the United States.

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