Which act established the Federal Reserve System?

• A. The Federal Trade Commission Act
• B. The Clayton Antitrust Act
• C. The Federal Reserve Act
• D. The Underwood Tariff Act

Answer: (C)

The question tests your understanding of U.S. efforts to stabilize the money supply and the banking system during the Progressive Era. After a history of financial instability and bank panics, reformers advocated for a centralized authority to manage monetary policy and serve as a lender of last resort. In 1913, Congress passed the Federal Reserve Act, creating the Federal Reserve System with twelve regional banks and a central Board of Governors. This structure gave the nation tools to influence the money supply and credit through things like reserve requirements and, more broadly, monetary policy operations, with the aim of preventing crises and smoothing economic fluctuations.

The other acts listed are important reform measures, but they address different issues. One established a federal agency to regulate unfair business practices, another strengthened antitrust enforcement, and another reformed tariffs and tax policy. None of these created a central banking system, which is why the Federal Reserve Act is the correct choice.