the Federal Reserve is trying to reduce its balance sheet by making open market sales. Use the market for reserves supply and demand model to show what would happen to the federal funds rate, non-borrowed reserves, and borrowed reserves. (Assume that in the initial equilibrium, the downward-sloping part of the demand curve intersects the vertical part of the supply curve. Be sure to label your graph and clearly state what happens to the federal funds rate, borrowed reserves, and non-borrowed reserves.) b) Now, let's suppose that the Federal Reserve doesn't want to change the federal funds rate and wants to counteract the policy explained in the previous graph. What can the Federal Reserve do to keep the federal funds rate at its initial value (before the open market sale)? Clearly state a policy different from open market operations to achieve this
Right now, the Federal Reserve is trying to reduce its
sales. Use the market for reserves supply and
federal funds rate, non-borrowed reserves, and borrowed reserves. (Assume that in the initial
equilibrium, the downward-sloping part of the demand curve intersects the vertical part of the
supply curve. Be sure to label your graph and clearly state what happens to the federal funds
rate, borrowed reserves, and non-borrowed reserves.)
b) Now, let's suppose that the Federal Reserve doesn't want to change the federal funds rate and
wants to counteract the policy explained in the previous graph. What can the Federal Reserve do
to keep the federal funds rate at its initial value (before the open market sale)? Clearly state a
policy different from open market operations to achieve this
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