How would the Fed reach this inflation target? The Fed would sell securities in an open market operation. increase the number of loans made to consumers. O buy securities in an open market operation. reduce taxes on bank deposits. lower the interest rate in the money market. increase aggregate prices.

Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter13: Money And The Banking System
Section: Chapter Questions
Problem 17CQ
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Suppose that the market for bank reserves in the United States is as depicted in the graph. Manipulate the graph to illustrate
how the Fed reaches the target federal funds rate.
Federal funds rate
Supply of reserves
A
Federal funds rate (current)
Federal funds rate (large)
Supply of reserves
Federal funds rate (current)
Federal funds rate (target)
Demand for reserves
Reserves on depsoit at the Fed
How would the Fed reach this inflation target? The Fed would
sell securities in an open market operation.
increase the number of loans made to consumers.
O buy securities in an open market operation.
reduce taxes on bank deposits.
lower the interest rate in the money market.
increase aggregate prices.
Transcribed Image Text:Suppose that the market for bank reserves in the United States is as depicted in the graph. Manipulate the graph to illustrate how the Fed reaches the target federal funds rate. Federal funds rate Supply of reserves A Federal funds rate (current) Federal funds rate (large) Supply of reserves Federal funds rate (current) Federal funds rate (target) Demand for reserves Reserves on depsoit at the Fed How would the Fed reach this inflation target? The Fed would sell securities in an open market operation. increase the number of loans made to consumers. O buy securities in an open market operation. reduce taxes on bank deposits. lower the interest rate in the money market. increase aggregate prices.
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