Chapter 26, Problem 1MCQ

To determine

The reason behind the creation of the Federal Reserve system.

Explanation of Solution

The core reason behind the creation of the Federal Reserve System was the bank panic of 1907. The earliest of many major economic disasters to hit the globe in the 20th century was the global bank panic of 1907. It not only changed a recession into a contraction, but it also sparked a push for monetary change. The American financial system has seen significant changes since the Federal Reserve System was established.

The Fed's three principal functions were to function as a clearinghouse, as the country U’s government's fiscal agent, and also as a lender of final resort. The National Banking Legislation of 1864 had several issues that were made public by the Panic of 1907, foremost among them being the fact that not all banks were covered by the act.