Consider the following diagram of the market for bank reserves, in which the current equilibrium value of
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a. Suppose that the FOMC issues a new Directive to the Trading Desk at the Federal Reserve Bank of New York specifying a new federal funds rate target of 2.25 percent. What policy action should the Trading Desk implement to comply with the new FOMC Directive?
b. Explain the adjustments that will take place in the above diagram following the policy action you identified in part (a).
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