The demand curve of reserves describes the total amount of reserves banks are willing to demand...
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The demand curve of reserves describes the total amount of reserves banks are willing to demand at different levels of the federal funds rate. Hence, it is the sum of excess and required reserves. Now, let's suppose the supply of reserves remains steady, while the overall amount of deposits in the banking system increases. What will happen to the equilibrium federal funds rate? (a) Nothing since neither supply nor demand are shifting (b) It will decrease since the demand for reserves will shift leftward (c) It will decrease since the demand for reserves will shift rightward (d) It will increase since the demand for reserves will shift rightward The demand curve of reserves describes the total amount of reserves banks are willing to demand at different levels of the federal funds rate. Hence, it is the sum of excess and required reserves. Now, let's suppose the supply of reserves remains steady, while the overall amount of deposits in the banking system increases. What will happen to the equilibrium federal funds rate? (a) Nothing since neither supply nor demand are shifting (b) It will decrease since the demand for reserves will shift leftward (c) It will decrease since the demand for reserves will shift rightward (d) It will increase since the demand for reserves will shift rightward
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