Answer the question below. Do the reading and answer it correctly. Thank you. Littell/Houghton Mifflin CompanyREVIEW.CALIFORNIA CONTENTSTANDARD 11.6.1Money and the EconomySpecific Objective: Describe the monetary issues of the late nineteenth and earlytwentieth centuries that gave rise to the establishment of the Federal Reserve and theweaknesses in key sectors of the economy in the late 1920s.Read the summary to answer questions on the next page.Establishing the Federal Reserve SystemThrough the late 1800s, banks often closed during economic crises. The federalgovernment or the banking system could not increase the supply of money or credit.People lost what they deposited, and paper money could not be exchanged for gold.Crises in 1873, 1883, and 1893 caused many banks to fail and businesses to gobankrupt. After a huge bank failed in 1907, Congress came up with a plan.• The Federal Reserve System was established in 1913 under President Wilson.• The Federal Reserve System still functions today to prevent bank failures andregulate the supply of money.A Weak Economy That Seemed StrongFrom the beginning of World War I in 1914 until 1929, everyone believed the U.S.economy was stronger than it had ever been. But during the late 1920s, problems inthe economy began to build up. Before the stock market crashed in 1929, the U.S.economy had the following problems:Uneven distribution of wealth-The richest people got richer while workers' wagesincreased only slightly. With only a small increase in their income, most people couldn'tafford to buy all of the products of U.S. industry.Too much production with too little demand-Factories continued to producemore and more goods, but people could not afford them. Warehouses were filled withunsold goods. Most major industries had slowed down by the middle of 1929.Widespread use of credit-People began to buy goods on credit. Many owed moremoney than they could pay back. By the end of the 1920s, buying slowed.Stock speculation-Because it seemed the stock market would always keep rising,many people borrowed money to buy stocks. If the stocks did not rise, those who hadborrowed would not have the money to pay for them.Farm problems-Farmers had problems as soon as the war ended. Many hadborrowed money to buy more land and grow more crops. After the war, Europeanfarmers started producing again, and prices dropped for American farm products. Thegovernment did not help farmers, and many lost their farms.Weak industries Older industries such as iron, railroads, mining, and textiles did notshare in the general prosperity.International economic problems-The United States kept tariffs high on foreigngoods to protect U.S. industries. However, if foreign countries could not sell goods inthe United States, they could not afford to buy U.S. exports or to payback loans. 42Which statement best describes theFederal Reserve System?AIt was established in 1913 and lasteduntil the stock market crash of 1929.BIt let private bankers control theeconomy through the interest rates onloans.C It was established in 1913 andcontinues to regulate the moneysupply today.D It was established in 1913 and backedU.S. currency with silver.

A financial institution that manages and regulates a country’s monetary policy, issues currency,…

42 Which statement best describes the Federal Reserve System? A It was established in 1913 and lasted until the stock market crash of 1929. B It let private bankers control the economy through the interest rates on loans. C It was established in 1913 and continues to regulate the money supply today D It was established in 1913 and backed U.S. currency with silver.