5.00% 4.50% 4.00% 3.50% 3.00% 2.50% Fed Funds Rate 2.00% 1.50% 1.00% 0.50% 0.00% 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 Bank Reserves ($Billion) Assume that currently the supply of reserves in the banking system is $130 billion and the Fed is paying 1.00 percent interest on reserves. Suppose that demand for reserves increases by $20 billion. Then, the equilibrium fed funds rate will equal percent. Suppose that demand increases by another $30 billion. Then, the equilibrium fed funds rate will equal percent. Forget about the increases in demand. This time assume that demand for reserves decreases by $40 billion. As a result the equilibrium fed funds rate will equal percent