Question
An equilibrium in the reserve market is at the downward slope of the demand curve. The equilibrium federal fund rate is 4%. The discount rate
An equilibrium in the reserve market is at the downward slope of the demand curve. The equilibrium federal fund rate is 4%. The discount rate is 5%. The interest on the reserve is 1%. The non-borrowed reserve is $200 Billion. The borrowed reserve is $0. Draw the supply and demand curves of the market for reserves. You need to point out all three interest rates and the non-borrowed reserve in your graph. The Fed shrinks the non-borrowed reserve by $100 Billion through open market sales. Then, an equilibrium is at the horizontal line of the supply curve where the borrowed reserve is $50 Billion. Using the supply and demand curves of the market for reserves, calculate the federal funds rate and total reserves, holding everything else constant
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