Instructions: The remaining questions are about the demand and supply for scarce or ample reserves. You are not...

Instructions: The remaining questions are about the demand and supply for scarce or ample reserves. You are not required to draw graphs, but drawing graphs may help determine the correct answer. For all questions, the correct answer is either: increase, decrease, or remain unchanged.

With scarce reserves, if the downward sloping demand for reserves intersects the vertical part of the supply curve, an open market sale will cause the federal funds rate to ________

With scarce reserves, if the downward sloping demand for reserves intersects the vertical part of the supply curve, an increase in required reserves will cause the federal funds rate to ________

With scarce reserves, if the downward sloping demand for reserves intersects the vertical part of the supply curve, a decrease in the interest on reserves will cause the federal funds rate to _________

With scarce reserves, if the federal funds rate equals the discount rate, an increase in the discount rate will cause the federal funds rate to _________

Solutions

Expert Solution

With scarce reserves, if the downward sloping demand for reserves intersects the vertical parts of the supply curve, an open market sale will cause the federal funds rate to rise because an open market purchase will cause the federal funds rate to fall.

With scarce reserves, if the downwadd sloping demand for reserves intersects the vertical parts of the supply curve, an increase in required curve will cause the federal funds rate to fall because if there is decrease in required curve will cause the federal funds rate to rise.

With scarce reserves, if the downward sloping demand for reserves intersects the vertical parts of the supply curve, a decrease in the interset on reserves will cause the federal funds rate to decrease because the lower interset rate on reserves will also reduce the federal funds and rise in interset rate increase the federal reserves.

With scarce reserves, if the federal funds rate equals to discount rate, an increase in the discount rate will cause the federal funds rate to decrease because in the market for reserves, when the federal funds equals the discount rate, lowering the discount rate and a decrease in the discount rate will cause the federal funds rate to increase.

Rahul Sunny answered 1 year ago

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