Suppose reserve demand is given by: Rd = 450 - 50 iff and reserve supply is given...

Suppose reserve demand is given by: R_d = 450 - 50 i_ffand reserve supply is given by: R_s = 300

Solve for the equilibrium federal funds rate. Draw a reserve market diagram below labeling this initial equilibrium as point A.

Suppose that the Fed decides that the economy needs a little boost and thus decides to lower the federal funds rate target by 50 basis points (.5 %). Explain exactly how this change in policy would be implemented.

Now solve for the new reserve supply associated with this new target, assuming that reserve demand is constant (stable) and label on your diagram as point B.

Expert Solution

Rahul Sunny answered 2 years ago

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