The graph shows the demand curve for bank reserves, RD. The current quantity of reserves supplied is $20 billion. Draw a point on the curve that shows the federal funds rate when the quantity of reserves supplied is $20 billion. Label it 1. The Fed wants to set the federal funds rate at 4 percent a year. Draw a supply of reserves curve that achieves the target. Label it. Draw a point to show the new equilibrium federal funds rate. Label it 2. To change the federal funds rate from 5 percent a year to 4 percent a year, the Fed conducts an open market of securities. 7- 6- 5- 4- 3- 2- 1- 0- Federal funds rate (percent per year) 0 RD 10 20 30 40 50 60 70 80 Reserves on deposit at the Fed (billions of dollars) Q

Q: Suppose banks decide to hold more excess reserves relative to deposits while the public retained the…

A: In an economy, money supply include the money circulated in the markets and the money held by the…

Q: Suppose the Fed decided to purchase $100 billion worth of government securities in the open market.…

A: M1 refers to narrow money that includes all the coins and notes in circulation along with money…

Q: The graph shows equilibrium in the money market. The equilibrium interest rate is determined at…

A: The money market refers to the market in which financial instruments with short-term maturities,…

Q: Explain the slopes of the supply and demand curves in the federal funds market.  Show and explain…

A: Money Market: It is the economic model that describes the demand and supply for money in an economy…

Q: Describe the open market operation of the Fed.  What open market actions would the Fed take to…

A: Open market operation refers to the selling and buying of government bonds by the central bank. In…

Q: The following graph represents the money market in a hypothetical economy. As in the United States,…

A: Any economy must have an appropriate money supply because it is the basis for all financial…

Q: Some individuals have suggested raising the required reserve ratio for banks to 100 percent in a…

A: The central banks set a percentage of the amount in commercial banks as a cash reserve. This is the…

Q: The manager of the bank where you work tells you that your bank has $10 million in excess reserves.…

A: Required reserve ratio refers to the percentage of deposits that a bank has to keep as reserves.

Q: Which of the following is one of the​ Fed's policy​ tools? One of the​ Fed's policy tools is​…

A: Monetary policy: - it is a tool of government or central bank of a country in which they control…

Q: The discount rate is the interest rate the Fed charges on loans of reserves to banks. The federal…

A: Monetary policies are the policies that the central bank can use to draft, announce, and…

Q: The graph shows an equilibrium in the market for reserves. An increase in the reserve requirement…

A: Reserve requirements are the amount of funds that a bank holds in reserve to ensure that it is able…

Q: The Fed buys $1 million in bonds from a bond dealer. The bond dealer deposits the money in a bank…

A: Step 1: Answer: The bank can lend out $850,000 after receiving the deposit of $1 million from the…

Q: The Fed wants to decrease the money supply when the economy is booming and inflationary pressures…

A: The money supply in an economy is controlled by the central bank of the economy. The central bank…

Q: Assume that the reserve requirement is 20 percent. Also assume that banks do nothold excess reserves…

A: The central bank of every nation is considered to be one of the most important entity in the…

Q: 1. During the most recent financial crisis, the Fed conducted large open market operations. The…

A: The monetary policy is operated by the central bank to produce the desirable and positive impacts in…

Q: The people in an economy have $10 million in money. There is only one bank that all the people…

A: The formula for money multiplier: Money multiplier = 1 / Required Reserve Ratio

Q: The above figure has the demand for money curve. Suppose the Fed initially sets the quantity of…

A: since you have asked multiple questions, according to our policy we will solve the first question.…

Q: f the Fed wants to raise interest rates, then it can use its open market operations to: Group of…

A: Open market operations is an policy tool that fed uses to alter the interest rate in which it sells…

Q: Which of the following is the most accurate description of events when monetary authorities increase…

A: Which of the following is the most accurate description of events when monetary authorities increase…

Q: If the Fed shifts to more restrictive monetary policy, it typically sells bonds. How will this…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: Use the following table to answer the next question. The money supply and investment are in…

A: Given  MPC = 0.8  Reserve requirement = 0.1 Money Supply (billions of dollars) Interest Rate…

Q: Establishing upper and lower limits for the federal funds rate enabled the Fed to A. buy financial…

A: The FOMC's primary approach on adjusting the stance of monetary policy will be with a change in the…

Q: If the Fed lowers the discount rate by half of a percentage point, it will, of course, encourage…

A: The money supply is the total amount of circulation and deposits in an economy over a period of…

Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.