1. For the each of the following scenario, draw a supply and demand curve of reserves to make the necessary changes, describe the type of policy that the Fed would need to conduct (if any) and indicate what happens to the market (effective) federal funds rate. (In all scenarios, you can assume that the "normal" starting equilibrium, that is, where vertical portion of supply curve intersects demand at its downward sloping portion as in the following graph.) Federal funds rate, foun Reserves, R a. The holiday shopping season causes banks to increase holdings of excess reserves. The Fed decides not to react. I b. The holiday shopping season causes banks to increase holdings of excess reserves. The Fed decides to react to keep the federal funds rate at the target. c. FOMC raises the target federal funds rate and NY Fed conducts necessary operations to achieve it. d. Fed decides to raise interest rate on reserve balances above the current equilibrium federal funds rate.

1. For the each of the following scenario, draw a supply and demand curve of reserves to make the necessary changes, describe the type of policy that the Fed would need to conduct (if any) and indicate what happens to the market (effective) federal funds rate. (In all scenarios, you can assume that the "normal" starting equilibrium, that is, where vertical portion of supply curve intersects demand at its downward sloping portion as in the following graph.) Federal funds rate, foun Reserves, R a. The holiday shopping season causes banks to increase holdings of excess reserves. The Fed decides not to react. I b. The holiday shopping season causes banks to increase holdings of excess reserves. The Fed decides to react to keep the federal funds rate at the target. c. FOMC raises the target federal funds rate and NY Fed conducts necessary operations to achieve it. d. Fed decides to raise interest rate on reserve balances above the current equilibrium federal funds rate.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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