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 raises reserve requirementsThe Fed exempts the first $10,000,000 of deposits from reserve requirementsThe Fed increases the interest rate paid on reserves and also increases the ON RRP rateNew financial regulations require banks to hold additional liquid and safe assetsThe Fed begins to reduce the size of its balance sheet

Question
Asked May 6, 2019
12 views

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:

 

 

  1. The Fed raises reserve requirements
  2. The Fed exempts the first $10,000,000 of deposits from reserve requirements
  3. The Fed increases the interest rate paid on reserves and also increases the ON RRP rate
  4. New financial regulations require banks to hold additional liquid and safe assets
  5. The Fed begins to reduce the size of its balance sheet

 

check_circle

Expert Answer

Step 1

Federal fund rate: It is the interest rate at which banks and other depository institutions lend to other institutions on the uncollateralized basis. As per the law, every bank must keep a certain percentage of their reserve with the federal reserve bank and the remaining reserve is available for lending.

Step 2

Demand for federal funds:  The demand curve for federal funds is negatively downwards sloping which indicates the negative relationship between demand for federal funds and federal funds rate.

Supply...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Economics

Monetary Policy

Related Economics Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: how would you answer

A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and s...

question_answer

Q: Explain the slopes of the supply and demand curves in the federal funds market.  Show and explain ho...

A: Money Market: It is the economic model that describes the demand and supply for money in an economy ...

question_answer

Q: (Table: Balance Sheet) Refer to the information in the tableBalance Sheet. If the reserve ratio is 2...

A: Total deposit:Total deposit can be calculated as follows.

question_answer

Q: 1. Suppose an increase in consumers' income causes a decrease in the demand for chicken and an incre...

A: 1.The demand for chicken:The demand for chicken is inferior good, because its demand decreases when ...

question_answer

Q: What type of function is the utility function expressed as u(x,y)=30lnx + y? Also, how would you go ...

A: A utility function u (x, y) represents a consumer’s preferences. That is, a utility function provide...

question_answer

Q: a1. You learn on the business channel that inflation was about 0.8% last month.  Assume this rate is...

A: Since you have not mentioned which question have to answer. So, I am answering question “a1”.

question_answer

Q: Lou’s preferences over pizza (x) and other goods (y) are given by U(x, y) = 2xy2. His income is $200...

A: Since we are entitled to answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the que...

question_answer

Q: Let’s say that Marianne is a politician who promises cheaper gasoline for everyone in the country if...

A: From the aforementioned question, it can be stated that Marianne is one of the politicians who are c...

question_answer

Q: In 2013, Prussia's aggregate demand curve was determined by the equation M + 1-4% A change in aggreg...

A: The quantity theory of money:The quantity theory of money equation can be written as follows: