SAT Subject US History Practice Question 905: Answer and Explanation

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Question: 905

76. 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.

Correct Answer: A


The Federal Reserve System, a Woodrow Wilson initiative, established a nationwide banking system with a central board and 12 district banks. It regulates interest rates and the amount of money in circulation. It was the first central bank since the Civil War. The Gramm-Rudman Balanced Budget Act (B), passed in 1985, is unrelated to the Federal Reserve System. The First and Second Banks of the United States (1791-1811 and 1816-1836) were designed to encourage the growth of industry (C), but that was not the major task of the Federal Reserve. The United States was already an industrial giant by 1913. The Securities and Exchange Commission of 1934 was established to regulate the stock market (D). Foreign trade is regulated by Congress as stipulated in the Constitution (E).

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