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On the following graph, show the effect of a contractionary OMO on the market for loanable funds. ? INTEREST RATE 5 3 2 1 1 The Market for Loanable Funds Supply of LF Demand for LF 3 QUANTITY OF FUNDS (Millions of Dollars 5 decreases As a result of a contractionary policy the interest rate increases Demand for LF Supply of LF whereas the amount of loanable funds

On the following graph, show the effect of a contractionary OMO on the market for loanable funds. ? INTEREST RATE 5 3 2 1 1 The Market for Loanable Funds Supply of LF Demand for LF 3 QUANTITY OF FUNDS (Millions of Dollars 5 decreases As a result of a contractionary policy the interest rate increases Demand for LF Supply of LF whereas the amount of loanable funds

Macroeconomics: Private and Public Choice (MindTap Course List)
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 16CQ
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On the following graph, show the effect of a contractionary OMO on the market for loanable funds. INTEREST RATE 6 5 3 2 1 0 0 1 The Market for Loanable Funds Supply of LF Demand for LF 5 decreases increases 2 3 4 QUANTITY OF FUNDS (Millions of Dollars As a result of a contractionary policy, the interest rate Demand for LF Supply of LF (?) whereas the amount of loanable funds
Transcribed Image Text:On the following graph, show the effect of a contractionary OMO on the market for loanable funds. INTEREST RATE 6 5 3 2 1 0 0 1 The Market for Loanable Funds Supply of LF Demand for LF 5 decreases increases 2 3 4 QUANTITY OF FUNDS (Millions of Dollars As a result of a contractionary policy, the interest rate Demand for LF Supply of LF (?) whereas the amount of loanable funds
The following graph shows the market for federal reserves. The kinked orange curve Supply FF shows the supply of federal funds. It is vertical at the current amount of available reserves and flattens when the federal funds rate reaches the prevailing discount rate. The blue curve shows the demand for federal funds, which is downward sloping. Suppose that the prevailing federal funds rate is 2% and the discount rate is 4%. The current amount of bank reserves is $2 million. Suppose the Federal Reserve implements a contractionary policy by selling $1 million worth of government securities in open market operations. On the following graph, show the effect of a contractionary OMO on the Fed funds market. (Hint: Use the green points (triangle symbols) to plot the two-part supply curve and the grey point (star symbol) to show the new federal funds rate.) FEDERAL FUNDS RATE 5 0 0 The Market for Federal Reserves Supply FF 2 QUANTITY OF EXCESS RESERVES (Millions of Dollars) 3 As a result of a contractionary policy, the federal funds rate On the following graph, show the effect of a contractionary 5 increases decreases New Supply FF New Federal Funds Rate (?) whereas the amount of available excess reserves market for loanable funds.
Transcribed Image Text:The following graph shows the market for federal reserves. The kinked orange curve Supply FF shows the supply of federal funds. It is vertical at the current amount of available reserves and flattens when the federal funds rate reaches the prevailing discount rate. The blue curve shows the demand for federal funds, which is downward sloping. Suppose that the prevailing federal funds rate is 2% and the discount rate is 4%. The current amount of bank reserves is $2 million. Suppose the Federal Reserve implements a contractionary policy by selling $1 million worth of government securities in open market operations. On the following graph, show the effect of a contractionary OMO on the Fed funds market. (Hint: Use the green points (triangle symbols) to plot the two-part supply curve and the grey point (star symbol) to show the new federal funds rate.) FEDERAL FUNDS RATE 5 0 0 The Market for Federal Reserves Supply FF 2 QUANTITY OF EXCESS RESERVES (Millions of Dollars) 3 As a result of a contractionary policy, the federal funds rate On the following graph, show the effect of a contractionary 5 increases decreases New Supply FF New Federal Funds Rate (?) whereas the amount of available excess reserves market for loanable funds.
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