If the Fed wants to temporarily drain reserves from the banking system,it will engage in
A) a repurchase agreement.
B) a matched sale-purchase transaction.
C) a "pump" agreement.
D) none of the above.

Question

Quizplus · Accepted Answer

A matched sale-purchase transaction involves the Fed selling securities to banks with an agreement to buy them back at a later date, which temporarily drains reserves from the banking system. A repurchase agreement, on the other hand, involves the Fed buying securities from banks with an agreement to sell them back at a later date, which injects reserves into the banking system. Choice C is not a real term or action taken by the Fed.

If the Fed Wants to Temporarily Drain Reserves from the Banking