Reference no: EM13299202

Consider two economies: Discretia and Fixedland. In both countries, banks hold excess reserves. In Descretia, banks hold less inexcess reserves when the opportunity cost of holding reserves increases. In Fixedland, all banks always hold exactly 2% in excess reserves. A. Show the money market in Discretia on a well-labeled graph, showing the Discretia's money supply and money demand curves as well as the equilibrium interest rate. B. Show the money market in Fixedland on a well-labeled graph, showing fixedland's money supply and money demand curves as well as equilibrium interest rate. C. Suppose that the current equilibrium interest rate is the same in both countries. Then, the central banks of Discretia and Fixedland simultanously conduct expansionary open market operations of equal magnitude. Will the expansionary open market operation have a greater short run effect on the interest rate in Discretia or Fixedland? Explain with reference to one graph.