Federal Reserve Act

Definition

The Federal Reserve Act of 1913 established the Federal Reserve System as the central bank of the United States to provide a safer, more flexible banking system and manage monetary policy.

Analogy

Consider the Federal Reserve System as your body's circulatory system. Just like how your heart pumps blood throughout your body to keep it functioning smoothly, this system manages money flow throughout our economy to keep it stable.

Related terms

Monetary Policy: The process by which a country's central bank controls money supply often targeting inflation or interest rate levels with an aim towards promoting economic growth stability.

Fiat Money: Currency without intrinsic value but has been established as money by government regulation.

Great Depression: A severe worldwide economic depression during 1930s where failures within banking systems played significant roles.