Consider a scenario where, over the next 10 years, the supply of aggregate bank reserves shrinks enough

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Consider a scenario where, over the next 10 years, the supply of aggregate bank reserves shrinks enough so that the reserve supply curve intersects the downward sloping part of the reserve demand curve and the Federal Reserve reverts to its pre-crisis implementation method for influencing the federal funds rate. Use a graph to illustrate and explain how the Federal Reserve would bring about a reduction in the federal funds rate. In this scenario, would it be possible to control independently both the price and quantity of reserves?

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Money Banking and Financial Markets

ISBN: 978-1259746741

5th edition

Authors: Stephen Cecchetti, Kermit Schoenholtz

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