Using the model of the market for reserves presented in Class 15, please show the effects of Large Scale Asset Purchases (quantitative easing). What happens to the quantity of non-borrowed reserves and the federal funds rate? (HINT: In Microsoft Word, you can use the drawing toolbar to create lines to draw graphs.) Please do not cut and paste from the class notes. You can cut and paste a graph you have already drawn.

How has the model changed since the Fed decided to pay interest on excess reserves in 2008? How has the model changed in response to the Corona Virus pandemic?

Open Market Operations Open market operations change the quantity of non-borrowed reserves. An open market purchase will increase the supply of reserves, While an open market sale will decrease the supply of reserves. If the supply of reserves increases, then the federal funds rate will decline. Figure 15-10 An Open Market Purchase lff