Compensating Balances at a Commercial Bank Are

question 89

Multiple Choice

Compensating balances at a commercial bank are:

• A) net differentials of balances with correspondent banks
• B) maintained by Federal Reserve for services rendered
• C) account balances required in connection with unsecured business loans under bank lines of credit
• D) required vault-held reserves as an alternative to reserves held by Federal Reserve Banks

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Definitions:

Reallocation

The process of redistributing resources or assets from less productive uses to more productive ones in order to enhance efficiency and economic output.

Diminishing Returns

A rule that asserts when one input in the production process is augmented and the rest remain unchanged, the resultant extra production will ultimately diminish.

Marginal Revenue Product

The additional revenue generated by employing one more unit of input, such as labor or capital.

Economic Rent

The excess payment made for a factor of production over its opportunity cost.