Use demand and supply graphs for the federal funds market to analyze the following two situations:

(a) Suppose that banks decrease their demand for reserves. Show how the Fed can offset this change through open market operations in order to keep the equilibrium federal funds rate unchanged.

(b) Suppose that in equilibrium the federal funds rate is equal to the interest rate the Fed is paying on reserves. If the Fed carries out an open market purchase, show the effect on the equilibrium federal funds rate