Supply and demand analysis of the market

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Using the supply and demand analysis of the market for reserves indicate what happens to the federal funds rate, borrowed reserves and non-borrowed reserves, holding everything else constant, under the following situations.

a) The Fed conducts an open market sale (assume that initial equilibrium is at a point where the downward slopping demand curve intersects at the vertical portion of the supply curve).

b) In order to increase the bank’s lending capacity, the Fed reduces the provision of reserve requirements (assume that initial equilibrium is at a point where the downward slopping demand curve intersects at the vertical portion of the supply curve).

c) In order to check inflation the Fed raises the target federal funds rate by raising the discount rate (assume that initial equilibrium is at a point where the downward slopping demand curve intersects at the horizontal portion of the supply curve).

Reference no: EM13836594

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