Reserve demand 1) Consider the demand for reserves and determination of the market overnight interest rate in an economy where the central bank pays an interest rate ro on reserve balances and charges an interest rate re for emergency loans to cover overdrafts. ro is lower than the central bank's target overnight rate rs. r, is higher than the central bank's target overnight rate rr. a) Draw a graph that shows reserve demand and the reserve supply that will cause the market overnight rate r to hit the central bank's target. Toot potem Tools b) Suppose the central bank's policy commitee raises the target overnight rate ry while making no change to rd or to rp. (It raises rr only a little, so that it is still between rp and rp.) Draw a graph that describes this event, and what is likely to happen to reserve supply. count ho ( Wood at data en onsdag od onda c) Now suppose that the central bank always adjusts rp and rp when it changes rr : rpis always equal tort plus one percent; ro is always equal to rt minus one percent. Draw a graph that describes this event, and what is likely to happen to reserve supply Reserve demand 1) Consider the demand for reserves and determination of the market overnight interest rate in an economy where the central bank pays an interest rate ro on reserve balances and charges an interest rate re for emergency loans to cover overdrafts. ro is lower than the central bank's target overnight rate rs. r, is higher than the central bank's target overnight rate rr. a) Draw a graph that shows reserve demand and the reserve supply that will cause the market overnight rate r to hit the central bank's target. Toot potem Tools b) Suppose the central bank's policy commitee raises the target overnight rate ry while making no change to rd or to rp. (It raises rr only a little, so that it is still between rp and rp.) Draw a graph that describes this event, and what is likely to happen to reserve supply. count ho ( Wood at data en onsdag od onda c) Now suppose that the central bank always adjusts rp and rp when it changes rr : rpis always equal tort plus one percent; ro is always equal to rt minus one percent. Draw a graph that describes this event, and what is likely to happen to reserve supply