What is the role of the Federal Reserve in the economy?

The role of the Federal Reserve in the economy primarily involves managing the nation's monetary policy and regulating financial institutions. This is crucial because the Federal Reserve aims to ensure price stability, maximum employment, and moderate long-term interest rates, which are fundamental for sustainable economic growth.

Managing monetary policy entails adjusting the money supply and interest rates to influence economic activity. For example, during times of economic downturn, the Federal Reserve might lower interest rates to encourage borrowing and spending, thereby stimulating the economy. Conversely, during periods of inflation, it might increase interest rates to curb spending and stabilize prices.

Additionally, the Federal Reserve plays a critical role in overseeing and regulating banks and other financial institutions. This oversight helps maintain the health of the financial system, ensures the safety of deposits, and promotes confidence in the banking sector.

The other options do not encapsulate the Federal Reserve's main functions. The institution does not set spending limits for businesses, increase tax rates, or enforce rules on stock market trades. Instead, its focus remains on monetary policy and financial regulation, making option B the most accurate representation of its role in the economy.