What is a primary responsibility of the Federal Reserve Board?

• A. Controls federal taxation
• B. Oversees market licensing
• C. Establishes monetary policy, sets bank interest rates, controls inflation, regulates the money supply
• D. Supervises interstate commerce

Answer: (C)

The main job being tested is how the Federal Reserve uses monetary policy to steer the economy. The Fed does this by setting policy about the cost and availability of money—things like the target for the federal funds rate and using tools such as open market operations, reserve requirements, and the discount rate. Through these actions, it influences banks’ lending, borrowing costs for households and businesses, inflation, and overall economic activity. That’s why the option describing establishing monetary policy, setting bank interest rates, controlling inflation, and regulating the money supply fits best—it directly captures the Fed’s central mission. Tax policy is set by Congress, licensing and interstate commerce involve other agencies and branches of government, so those options don’t describe the Fed’s primary responsibility.