The federal funds market is shown in the graph below. Assume the market is in equilibrium and that the Federal Reserve has established a 5% target for the federal funds rate. a. Suppose that banks are nervous about the next election and hold more excess reserves, causing the amount of reserves at banks to increase. Show this change in the demand for reserves in the federal funds market. Instructions: Use the tool provided 'Dff1' to draw a new demand for reserves curve. Plot only the endpoints of the line (2 points total). Federal Funds Market Federal Funds Rate (percent) 10 20 30 40 50 60 70 80 90 100 Tools DH1 0 F 4 b. In order to keep the federal funds rate at the target rate, the Fed will need to conduct an open market purchase so the quantity of reserves will increase to meet the change in reserve demand.
The federal funds market is shown in the graph below. Assume the market is in equilibrium and that the Federal Reserve has established a 5% target for the federal funds rate. a. Suppose that banks are nervous about the next election and hold more excess reserves, causing the amount of reserves at banks to increase. Show this change in the demand for reserves in the federal funds market. Instructions: Use the tool provided 'Dff1' to draw a new demand for reserves curve. Plot only the endpoints of the line (2 points total). Federal Funds Market Federal Funds Rate (percent) 10 20 30 40 50 60 70 80 90 100 Tools DH1 0 F 4 b. In order to keep the federal funds rate at the target rate, the Fed will need to conduct an open market purchase so the quantity of reserves will increase to meet the change in reserve demand.
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Monetary System
Section: Chapter Questions
Problem 2PA
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Question
![The federal funds market is shown in the graph below. Assume the market is in equilibrium and that the Federal Reserve has
established a 5% target for the federal funds rate.
a. Suppose that banks are nervous about the next election and hold more excess reserves, causing the amount of reserves at banks to
increase. Show this change in the demand for reserves in the federal funds market.
Instructions: Use the tool provided 'Dff1' to draw a new demand for reserves curve. Plot only the endpoints of the line (2 points total).
Federal Funds Market
Federal Funds Rate (percent)
10 20 30 40 50 60 70 80 90 100
Tools
DH1
0
F
4
b. In order to keep the federal funds rate at the target rate, the Fed will need to conduct an open market purchase so the quantity of
reserves will increase
to meet the change in reserve demand.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdb319006-c35c-4547-a021-9c410be8f262%2F8919fe41-5f0a-4ada-8567-de82abb5646c%2Fxvmnwxw_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The federal funds market is shown in the graph below. Assume the market is in equilibrium and that the Federal Reserve has
established a 5% target for the federal funds rate.
a. Suppose that banks are nervous about the next election and hold more excess reserves, causing the amount of reserves at banks to
increase. Show this change in the demand for reserves in the federal funds market.
Instructions: Use the tool provided 'Dff1' to draw a new demand for reserves curve. Plot only the endpoints of the line (2 points total).
Federal Funds Market
Federal Funds Rate (percent)
10 20 30 40 50 60 70 80 90 100
Tools
DH1
0
F
4
b. In order to keep the federal funds rate at the target rate, the Fed will need to conduct an open market purchase so the quantity of
reserves will increase
to meet the change in reserve demand.
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