The Federal Reserve is the central banking system of the United States. The roles of the Federal Reserve include regulating the monetary policy and supply, preventing financial panics, and supervising banking institutions. The Federal Reserve was created early in the twentieth century primarily in response to the frequent financial panics that would cripple the U.S. economy, most prominent of which was the Panic of 1907. The powers of the Federal Reserve have expanded throughout the years, usually in response to other financial disasters like the Great Depression. Recent evidence suggests the Federal Reserve is essentially powerless to prevent the destabilizing force that is our boom and bust economy.
With which of these statements about the Federal Reserve would the author most likely agree?
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Correct Answer: D
The author of this passage notes towards the end of the passage that "recent evidence suggests the Federal Reserve is essentially powerless to prevent the destabilizing force that is our boom and bust economy." The author does not suggest that the creation of the Federal Reserve was necessarily a mistake or that it needs to be reformed. He simply feels that the Federal Reserve has little power to prevent economic recessions. From the author’s comment about the boom and bust nature of the economy, he would likely contend that the economy needs to be reformed, not the Federal Reserve.