When the Fed Engages in an Overnight Repo

question 54

Multiple Choice

When the Fed engages in an overnight repo

• A)a bank agrees to hold a certain amount of clearing balances at the Fed.
• B)a secondary government securities dealer agrees to buy a security from the Fed one day and sell it back the next day.
• C)a primary government securities dealer agrees to sell a security to the Fed one day and buy it back the next day.
• D)The Fed repossesses property that a bank owns as punishment for the bank's failure to pay off a discount loan.

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Definitions:

Decreasing Cost

Decreasing cost refers to a situation where costs fall as the scale of production increases, often due to efficiencies or benefits gained from economies of scale.

Differentiated Product

A product that has unique characteristics compared to other products in the market, often highlighted through branding and quality to compete on factors other than price.

Downward Sloping Demand

A fundamental principle in economics that suggests demand for a product decreases as the price increases, illustrated by a demand curve that slopes downwards from left to right.

Homogeneous Product

A Homogeneous Product is one that is seen as identical or very similar in nature, quality, and performance, regardless of the producer.