N1

Using graphs of the market for reserves, explain and indicate what happens to the cash rate, borrowed reserves, and nonborrowed reserves in the following situations, holding everything else constant. Note that different starting positions of the graph can result in different results; your answer must cover all potential scenarios. (a) (5 marks) The RBA increases the reserve requirement for Australian banks. (b) (5 marks) The RBA engages in a defensive open market operation to keep the cash rate constant in light of a sudden outflow of cash withdrawal prior to the lockdown.