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

The primary function of the Federal Reserve System, established in 1913, was to provide the nation with a safer, more flexible, and more stable monetary and financial system. One of its key roles included managing inflation, which involves overseeing the country's money supply and influencing interest rates to promote stable prices and full employment.

This function was particularly important in the context of the early 20th century, as the U.S. economy was experiencing significant growth along with financial panics and bank failures, which necessitated a centralized authority to regulate monetary policy effectively. By managing inflation and stabilizing the economy, the Federal Reserve aimed to mitigate the economic crises that had previously plagued the country.

The other options do not accurately represent the primary role of the Federal Reserve. Regulating state banks, while a concern, was not the core purpose of its creation. Oversight of military budgets is outside the scope of the Federal Reserve's responsibilities. Lastly, providing postal services is unrelated to the monetary functions of the Federal Reserve System.