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1. (50 points) Leading up to and during the Lehman Brothers eollapse, overnight lending markets became quite volatile, as shown by the gure below. 1.

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1. (50 points) Leading up to and during the Lehman Brothers eollapse, overnight lending markets became quite volatile, as shown by the gure below. 1. a) In the spaee below, draw a reserve market diagram depicting points A, B, and C. Assume that the Fed held reserve supply constant and that the volatility in the effective federal funds eame originated from the volatility in reserve demand. Note, this is the period before the Fed obtained the authority to pay interest on reserves

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