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a. (10 points) Draw and explain the exact shape of the complete graph of the Fed funds market; i.e., why do the supply and demand
a. (10 points) Draw and explain the exact shape of the complete graph of the Fed funds market; i.e., why do the supply and demand curves in that graph look as they do? (Note: This is the second set of Fed-related graphs we studied, beginning with slide 10 of the lecture for Oct. 28. Do not use the simple ones with vertical supply and downward-sloping demand curves covered earlier.) Using the complete graph of the Fed Funds market that you drew in part (a), show exactly what happens in each of the following cases: b. (5 points) The Fed lowers the discount rate, but this has no effect on the equilibrium Fed funds rate. c. (5 points) The Fed lowers the discount rate, which in turn lowers the equilibrium Fed funds rate. d. (5 points) The Fed lowers the reserve requirement from 10% to 8%, and the equilibrium Fed funds rate declines as a result. a. (10 points) Draw and explain the exact shape of the complete graph of the Fed funds market; i.e., why do the supply and demand curves in that graph look as they do? (Note: This is the second set of Fed-related graphs we studied, beginning with slide 10 of the lecture for Oct. 28. Do not use the simple ones with vertical supply and downward-sloping demand curves covered earlier.) Using the complete graph of the Fed Funds market that you drew in part (a), show exactly what happens in each of the following cases: b. (5 points) The Fed lowers the discount rate, but this has no effect on the equilibrium Fed funds rate. c. (5 points) The Fed lowers the discount rate, which in turn lowers the equilibrium Fed funds rate. d. (5 points) The Fed lowers the reserve requirement from 10% to 8%, and the equilibrium Fed funds rate declines as a result
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