7) Explain the slopes of the supply and demand curves in the federal funds market. Show and explain how the following events would affect the federal funds rate: The Fed exempts the first $10,000,000 of deposits from reserve requirement

7) Explain the slopes of the supply and demand curves in the federal funds market. Show and explain how the following events would affect the federal funds rate: The Fed exempts the first $10,000,000 of deposits from reserve requirement

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter14: Banking And The Money Supply

Section: Chapter Questions

Problem 3.7P

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Concept explainers

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.

Question

7) Explain the slopes of the supply and demand curves in the federal funds market. Show and explain how the following events would affect the federal funds rate:

The Fed exempts the first $10,000,000 of deposits from reserve requirement

Defintion Defintion Curve that represents the graphical relationship between the total supply of goods and services and the price level in the economy. When the price level increases, producers tend to supply more of a product in the market to earn a higher revenue or vice versa.

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