The following graph shows a hypothetical demand function for federal funds. Currently, the total amount of reserves in the banking system is $50 billion, the discount rate is 3.5 percent, and interest on reserves equals IOR = 1 percent. If demand for federal funds increases by $40 billion, the equilibrium fed funds rate will equal: Federal Funds Rate (FFR) 5.50% 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% SO $10 $20 Oa. FFR 3.00% Ob. FFR = 3.50% O c. FFR = 4.00% d. FFR = 4.50% e. None of the above. $30 $40 $50 560 570 580 $90 $100 $110 $120 $130 $140 Bank Excess Reserves (SBillion)

The following graph shows a hypothetical demand function for federal funds. Currently, the total amount of reserves in the banking system is $50 billion, the discount rate is 3.5 percent, and interest on reserves equals IOR = 1 percent. If demand for federal funds increases by $40 billion, the equilibrium fed funds rate will equal: Federal Funds Rate (FFR) 5.50% 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% SO $10 $20 Oa. FFR 3.00% Ob. FFR = 3.50% O c. FFR = 4.00% d. FFR = 4.50% e. None of the above. $30 $40 $50 560 570 580 $90 $100 $110 $120 $130 $140 Bank Excess Reserves (SBillion)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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