As discussed in class, all bank deposits at the Federal Reserve Bank (Fed) qualify as Reserves. However, not all Reserves are the same. The Fed makes a distinction between Required Reserves, and Excess Reserves. In class, we examined data showing that one of these two aggregates changed suddenly and dramatically starting in 2009. Which of the two aggregates was it that changed dramatically, Required Reserves or Excess Reserves? What was the nature of the change?

Lets say that for some reason Bank Excess Reserves suddenly increase sharply. What effect would this change tend to have on interest rates for federal funds? Why?