Question 2 2 pts 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% Fed Funds Rate 2.00% 1.50% 1.00% 0.50% 0.00% 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 Bank Reserves ($Billion) Consider the above graph that shows demand for excess reserves by the banking system as a whole. The discount rate is 4.0 percent. Currently banks as a whole are holding an excess reserve of $50billion. This means that the equilibrium fed funds rate is percent. 3/4/2021 rk 9 (ECN 1B Winter 2021) https://canvas. ucdavis. edu/courses/534369/quizzes/11 A severe recession comes and to stimulate economic activity, the Fed increases the supply of reserves by $40 billion through an open market purchase of bonds. As a result, the equilibrium fed funds changes to percent. The Fed is not satisfied with the effect of this policy on unemployment. It increases the supply of reserves by another $20 billion through another round of an open market purchase. As a result the equilibrium fed funds rate changes to percent. The Fed decides to increase the supply of reserves by another $20 billion. This causes the federal funds rate to change to percent