b) (4 points) If R: = 420 - 50 i", given the information above, what is the market clearing federal funds rate? Show all of your work Draw a reserve market diagram depicting exactly what is going on here! Label this initial equilibrium point as point A. (10 points for correct and completely labeled diagram) c) (10 points) So you get this authority and decide, along with the FOMC, that the most appropriate rate to pay on excess reserves would be 50 basis points (0.50%). Given these new conditions, explain what would happen reserve demand and why. You don't need to derive an expression for reserve demand, just explain what would happen to reserve demand and the market clearing federal funds rate and why (be specific and make sure you convey to me that you know how this 'tool' works!) Depict this development on your reserve market diagram and label as point B. Make sure you show how reserve demand is affected and refer to your diagram within your answer. Let's return to the original conditions before you were granted the authority to pay interest on reserves. Redraw a reserve market diagram locating point A as before. (20 points for correct and completely labeled diagram) We new experience a shock to reserve demand so that the 'new' reserve demand curve is: Ier=47o-50i