2. The effect of the Fed's policy on the markets for federal fundsand loanable funds The following graph shows the market for federal reserves. The kinked orange curve Supply FF shows the supply of federal funds. It is vertical at the current amount of available reserves and flattens when the federal funds rate reaches the prevailing discount rate. The blue curve shows the demand for federal funds, which is downward sloping. Suppose that the prevailing federal funds rate is 3% and the discount rate is 3%. The current amount of bank reserves is $2 million. Suppose the Federal Reserve implements an expansionary policy by buying $1 million worth of government securities in open market operations. On the following graph, show the effect of an expansionary OMO on the Fed funds market. (Hint: Use the green points (triangle symbols) to plot the two-part supply curve and the grey point (star symbol) to show the new federal funds rate.) As a result of an expansionary policy, the federal funds rate whereas the amount of available excess reserves On the following graph, show the effect of an expansionar] On the following graph, show the effect of an expansionar] As a result of an expansionary policy, the interest rate market for loanable funds. ?) whereas the amount of loanable funds