Suppose that the Federal Open Market Committee (FOMC) publishes a press releasestatingthat the FOMC decided to lower its target for the federal funds rate by 75 basis points (0.75%) to 3.5%.by conducting an open market puchase The press release goes on to say that in a related action the Board of Governors approved a 75 basis points (0.75%) decrease in the discount rate to 4%.

(a) Use a demand and supply graph for the market of reserves to show the equilibrium federal funds rate and the discount rate beforethe announced policy action.[3 Points]

(b) Use your graph in Part (a) to show how the Fed would lower the federal funds rate by 75 basis points (0.75%). Also show in your graph the 75-basis point decrease in the discount rate. What policy action would the Fed use to lower the federal funds rate by 75 basis points?[6 Points]