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4) Suppose that the discount rate is currently 7%, the federal funds rate is 5%, and the interest on reserves is 3%. Also, the level
4) Suppose that the discount rate is currently 7%, the federal funds rate is 5%, and the interest on reserves is 3%. Also, the level of non-borrowed reserves is $26 and there are $0 of borrowed reserves. a) Draw a diagram that accurately reflects the information provided above. b) In the past there was talk about eliminating all reserve requirements. Show the effect of this on the diagram you drew in part a). c) Based on the elimination of the reserve requirements, what would happen to... i) the federal funds rate (UP/DOWN/STAY THE SAME)? ii) the discount rate (UP/DOWN/STAY THE SAME)? iii) non-borrowed reserves (UP/DOWN/STAY THE SAME)? iv) total reserves (UP/DOWN/STAY THE SAME)
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