Suppose that the Federal Reserve pays 0.5 percent interest rate on reserves ( = 0.5%), the discount rate on discount loans charged by the Federal Reserve is 2 percent ( = 2%), and the current federal fund rate is 1.5 percent ( = 1.5%).

A) Please draw the supply and demand curves of reserves in the following diagram.

B) The chairman of the Federal Reserve is planning to reduce the federal fund rate to 1% through open market operations. Please draw the corresponding changes of supply and demand curves of reserves in the following diagram (including the original supply and demand curves before the open market operations).

6, (10 points) Suppose that the Federal Reserve pays 0.5 percent interest rate on reserves (ior = 0.5%), the discount rate on discount loans charged by the Federal Reserve is 2 percent (id = 2%), and the current federal fund rate is 1.5 percent (ifp = 1.5%). A) Please draw the supply and demand curves of reserves in the following diagram. Federal Fund Rate 2.5% 2% 1.5% 1% 0.5% Reserves B) The chairman of the Federal Reserve is planning to reduce the federal fund rate to 1% through open market operations. Please draw the corresponding changes of supply and demand curves of reserves in the following diagram (including the original supply and demand curves before the open market operations). Federal Fund Rate 2.5% 2% 1.5% 1% 0.5% Reserves 6, (10 points) Suppose that the Federal Reserve pays 0.5 percent interest rate on reserves (ior = 0.5%), the discount rate on discount loans charged by the Federal Reserve is 2 percent (id = 2%), and the current federal fund rate is 1.5 percent (ifp = 1.5%). A) Please draw the supply and demand curves of reserves in the following diagram. Federal Fund Rate 2.5% 2% 1.5% 1% 0.5% Reserves B) The chairman of the Federal Reserve is planning to reduce the federal fund rate to 1% through open market operations. Please draw the corresponding changes of supply and demand curves of reserves in the following diagram (including the original supply and demand curves before the open market operations). Federal Fund Rate 2.5% 2% 1.5% 1% 0.5% Reserves