Explain how the following changes effect the Fed Funds market. In each case, draw the appropriate Fed funds market diagram. Assume the Fed funds rate is initially below the discount rate.

a. suppose mutual funds start to allow unlimited check writing in accounts not subject to reserve requirements. Many bank customers close their checking accounts and open mutual funds accounts.

i. determine likely effects if the fed does not respond.

ii. determine the likely effects if the fed stabilizes the fed funds rate.

b. the fed reduces the required reserve ratio.