The Federal Reserve System

AP® Exam Tip

The Federal Reserve is responsible for conducting monetary policy for the United States. Other nations have central banks with different names, and the AP® exam may simply refer to the “central bank” rather than identifying a particular central bank.

A central bank is an institution that oversees and regulates the banking system and controls the monetary base.

Who’s in charge of ensuring that banks maintain enough reserves? Who decides how large the monetary base will be? The answer, in the United States, is an institution known as the Federal Reserve (or, informally, as “the Fed”). The Federal Reserve is a central bank—an institution that oversees and regulates the banking system and controls the monetary base. Other central banks include the Bank of England, the Bank of Japan, and the European Central Bank, or ECB.