V2

1. Suppose that banks have become less concerned about their reserve requirements. Assume that the Federal Funds market operates as it did before 2008. (a) Use the Demand-Supply Diagram of the Federal Funds market to determine how this change affects the quantity of reserves and the Federal Funds rate. (b) If the Fed wanted to keep the Federal Funds rate constant, how would it have to respond? Explain and show your answer in the diagram. (c) Does the Fed conduct an expansionary OMO or a contractionary OMO? (d) How would your answer change if instead the Federal Funds market operated as it did after 2008