Fed Funds Rate7.0%6.5%6.0%5.5%5.0%4.5%4.0%3.5%3.0%2.5%2.0%1.5%1.0%0.5%0.0%0$$50$100$150$200$250$300$350$400$450$500$550$600$650$700$750$800Federal Funds ($Billions)Consider the above graph that shows demand for excessreserves by the bankingsystem as a whole. Currently banks as a whole are holding an excess reserve of $350billion.The graph indicates that the Fed is payingpercent interest onbank excess reserves and that the equilibrium fed funds rate ispercent.If the Fed reduces the interest on bank reserves to one percent, the equilibrium fedfunds rate will equalpercent.

Excess reserves refer to the excess funds that banks hold above and further, the required reserves…

tem as a whole. Currently banks as a whole are holding an excess reserve of $350 on. graph indicates that the Fed is paying k excess reserves and that the equilibrium fed funds rate is cent. percent interest on e Fed reduces the interest on bank reserves to one percent the equilibrium fed

tem as a whole. Currently banks as a whole are holding an excess reserve of $350 on. graph indicates that the Fed is paying k excess reserves and that the equilibrium fed funds rate is cent. percent interest on e Fed reduces the interest on bank reserves to one percent the equilibrium fed

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Fed Funds Rate
7.0%
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
0$
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
$650
$700
$750
$800
Federal Funds ($Billions)
Consider the above graph that shows demand for excess
reserves by the banking
system as a whole. Currently banks as a whole are holding an excess reserve of $350
billion.
The graph indicates that the Fed is paying
percent interest on
bank excess reserves and that the equilibrium fed funds rate is
percent.
If the Fed reduces the interest on bank reserves to one percent, the equilibrium fed
funds rate will equal
percent.

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8. When the interest on reserve balances rate is higher than the federal funds rate, banks can a. lend at the interest rate on reserve balances rate and borrow at the federal funds rate, earning a profit on the difference. b. borrow at the federal funds rate and deposit at the interest on reserve balances rate, earning a profit on the difference. c. lend at the federal funds rate and borrow at the interest on reserve balance rate, earning a profit on the difference. d. borrow at the interest on reserve balances rate and deposit at the federal funds rate, earning a profit on the difference.
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