Advanced Placement US History (AP US History) Practice Exam 2025 - Free AP US History Practice Questions and Study Guide

The primary purpose of the Federal Reserve System, established in 1913, was to provide a safer, more flexible, and more stable monetary and financial system. This was in response to frequent financial panics and bank runs that occurred in the late 19th and early 20th centuries, which threatened the stability of the banking system and the economy.

By creating a central banking system, the Federal Reserve aimed to manage the nation's monetary policy effectively, serving as a lender of last resort during times of financial distress and ensuring that banks could maintain liquidity. This central role has allowed the Federal Reserve to influence interest rates, which, in turn, helps regulate inflation and stabilize the economy.

The other options do not capture the core mission of the Federal Reserve. While maintaining a gold standard and overseeing state banks were functions relevant to banking and monetary policy at certain points in history, they were not the primary goals of the Federal Reserve's establishment. Regulating the stock market is more associated with the Securities and Exchange Commission and was not a direct focus of the Federal Reserve when it was created. Thus, the correct answer highlights the essential objectives for which the Federal Reserve was developed.