Question: reproduced here from your text (about page 514, Section 15.2.3) shows the market for federal funds when the economy is away from the flat portion
reproduced here from your text (about page 514, Section 15.2.3) shows the market for federal funds when the economy is away from the "flat portion" of the D curve. Notice that the supply of reserves is a vertical line (perfectly inelastic supply for a broad range of rates. This question is to be answered with the assumption that the economy is near an intersection of D and S where D is downward sloping and S is vertical. For example, the point in the graph showing R* and I*ff, where R* is the level of reserves and I*ff is the federal funds rate.
-What are 2 ways the FED can alter the supply of reserves? Do not include changing the reserve requirement.
-If the FED increases reserves, would that cause a lower or higher federal funds rate? Explain in a supply and demand context.
-If the FED decreases reserves, would that cause a lower or higher federal funds rate? Explain in a supply and demand context.
| FRED Graph Observations | | |||||||||||||||
| Federal Reserve Economic Data | ||||||||||||||||
| Link: https://fred.stlouisfed.org | ||||||||||||||||
| Help: https://fredhelp.stlouisfed.org | ||||||||||||||||
| Economic Research Division | ||||||||||||||||
| Federal Reserve Bank of St. Louis | ||||||||||||||||
| RESBALNS | Total Reserve Balances Maintained with Federal Reserve Banks (DISCONTINUED), Billions of Dollars, Monthly, Not Seasonally Adjusted | |||||||||||||||
| FEDFUNDS | Federal Funds Effective Rate, Percent, Monthly, Not Seasonally Adjusted | |||||||||||||||
| DFEDTARU | Federal Funds Target Range - Upper Limit, Percent, Monthly, Not Seasonally Adjusted | |||||||||||||||
| DFEDTARL | Federal Funds Target Range - Lower Limit, Percent, Monthly, Not Seasonally Adjusted | |||||||||||||||
| Earliest Perod | 2009.01 | Earliest Perod | 2017.03 | |||||||||||||
| Latest Period | 2020.08 | Latest Period | 2019.02 | |||||||||||||
| observation_date | Year | Year.Month | RESBALNS | FEDFUNDS | DFEDTARU | DFEDTARL | Check1 | observation_date | Year | Year.Month | RESBALNS | FEDFUNDS | DFEDTARU | DFEDTARL | Check1 | |
| 2009-01-01 | 2009 | 2009.01 | 820.669 | 0.15 | 0.25 | 0.00 | 1.00 | 2017-03-01 | 2017 | 2017.03 | 2326.253 | 0.79 | 0.88 | 0.63 | 1.00 | |
| 2009-02-01 | 2009 | 2009.02 | 662.192 | 0.22 | 0.25 | 0.00 | 1.00 | 2017-04-01 | 2017 | 2017.04 | 2281.420 | 0.90 | 1.00 | 0.75 | 1.00 | |
| 2009-03-01 | 2009 | 2009.03 | 741.020 | 0.18 | 0.25 | 0.00 | 1.00 | 2017-05-01 | 2017 | 2017.05 | 2225.769 | 0.91 | 1.00 | 0.75 | 1.00 | |
| 2009-04-01 | 2009 | 2009.04 | 844.528 | 0.15 | 0.25 | 0.00 | 1.00 | 2017-06-01 | 2017 | 2017.06 | 2206.547 | 1.04 | 1.13 | 0.88 | 1.00 | |
| 2009-05-01 | 2009 | 2009.05 | 865.312 | 0.18 | 0.25 | 0.00 | 1.00 | 2017-07-01 | 2017 | 2017.07 | 2233.323 | 1.15 | 1.25 | 1.00 | 1.00 | |
| 2009-06-01 | 2009 | 2009.06 | 771.976 | 0.21 | 0.25 | 0.00 | 1.00 | 2017-08-01 | 2017 | 2017.08 | 2344.015 | 1.16 | 1.25 | 1.00 | 1.00 | |
| 2009-07-01 | 2009 | 2009.07 | 758.906 | 0.16 | 0.25 | 0.00 | 1.00 | 2017-09-01 | 2017 | 2017.09 | 2295.735 | 1.15 | 1.25 | 1.00 | 1.00 | |
| 2009-08-01 | 2009 | 2009.08 | 790.761 | 0.16 | 0.25 | 0.00 | 1.00 | 2017-10-01 | 2017 | 2017.10 | 2245.701 | 1.15 | 1.25 | 1.00 | 1.00 | |
| 2009-09-01 | 2009 | 2009.09 | 884.206 | 0.15 | 0.25 | 0.00 | 1.00 | 2017-11-01 | 2017 | 2017.11 | 2314.455 | 1.16 | 1.25 | 1.00 | 1.00 | |
| 2009-10-01 | 2009 | 2009.10 | 1017.767 | 0.12 | 0.25 | 0.00 | 1.00 | 2017-12-01 | 2017 | 2017.12 | 2244.274 | 1.30 | 1.40 | 1.15 | 1.00 | |
| 2009-11-01 | 2009 | 2009.11 | 1102.446 | 0.12 | 0.25 | 0.00 | 1.00 | 2018-01-01 | 2018 | 2018.01 | 2214.601 | 1.41 | 1.50 | 1.25 | 1.00 | |
| 2009-12-01 | 2009 | 2009.12 | 1099.831 | 0.12 | 0.25 | 0.00 | 1.00 | 2018-02-01 | 2018 | 2018.02 | 2238.775 | 1.42 | 1.50 | 1.25 | 1.00 | |
| 2010-01-01 | 2010 | 2010.01 | 1070.701 | 0.11 | 0.25 | 2018-03-01 | 2018 | 2018.03 | 2167.009 | 1.51 | 1.58 | 1.33 | 1.00 | |||
| 2010-02-01 | 2010 | 2010.02 | 1183.755 | 0.13 | 0.25 | 2018-04-01 | 2018 | 2018.04 | 2086.192 | 1.69 | 1.75 | 1.50 | 1.00 | |||
| 2010-03-01 | 2010 | 2010.03 | 1143.627 | 0.16 | 0.25 | 2018-05-01 | 2018 | 2018.05 | 2022.453 | 1.70 | 1.75 | 1.50 | 1.00 | |||
| 2010-04-01 | 2010 | 2010.04 | 1076.456 | 0.20 | 0.25 | 2018-06-01 | 2018 | 2018.06 | 1988.224 | 1.82 | 1.89 | 1.64 | 1.00 | |||
| 2010-05-01 | 2010 | 2010.05 | 1070.761 | 0.20 | 0.25 | 0.00 | 1.00 | 2018-07-01 | 2018 | 2018.07 | 1949.820 | 1.91 | 2.00 | 1.75 | 1.00 | |
| 2010-06-01 | 2010 | 2010.06 | 1058.765 | 0.18 | 0.25 | 0.00 | 1.00 | 2018-08-01 | 2018 | 2018.08 | 1911.165 | 1.91 | 2.00 | 1.75 | 1.00 | |
| 2010-07-01 | 2010 | 2010.07 | 1046.938 | 0.18 | 0.25 | 0.00 | 1.00 | 2018-09-01 | 2018 | 2018.09 | 1873.866 | 1.95 | 2.03 | 1.78 | 1.00 | |
| 2010-08-01 | 2010 | 2010.08 | 1044.121 | 0.19 | 0.25 | 0.00 | 1.00 | 2018-10-01 | 2018 | 2018.10 | 1830.017 | 2.19 | 2.25 | 2.00 | 1.00 | |
| 2010-09-01 | 2010 | 2010.09 | 1006.743 | 0.19 | 0.25 | 0.00 | 1.00 | 2018-11-01 | 2018 | 2018.11 | 1775.291 | 2.20 | 2.25 | 2.00 | 1.00 | |
| 2010-10-01 | 2010 | 2010.10 | 998.508 | 0.19 | 0.25 | 0.00 | 1.00 | 2018-12-01 | 2018 | 2018.12 | 1691.394 | 2.27 | 2.35 | 2.10 | 1.00 | |
| 2010-11-01 | 2010 | 2010.11 | 997.742 | 0.19 | 0.25 | 0.00 | 1.00 | 2019-01-01 | 2019 | 2019.01 | 1639.030 | 2.40 | 2.50 | 2.25 | 1.00 | |
| 2010-12-01 | 2010 | 2010.12 | 1035.074 | 0.18 | 0.25 | 0.00 | 1.00 | 2019-02-01 | 2019 | 2019.02 | 1645.233 | 2.40 | 2.50 | 2.25 | 1.00 | |
| 2011-01-01 | 2011 | 2011.01 | 1066.213 | 0.17 | 0.25 | 0.00 | 1.00 | |||||||||
| 2011-02-01 | 2011 | 2011.02 | 1219.257 | 0.16 | 0.25 | 0.00 | 1.00 | |||||||||
| 2011-03-01 | 2011 | 2011.03 | 1391.358 | 0.14 | 0.25 | 0.00 | 1.00 | |||||||||
| 2011-04-01 | 2011 | 2011.04 | 1484.147 | 0.10 | 0.25 | 0.00 | 1.00 | |||||||||
| 2011-05-01 | 2011 | 2011.05 | 1546.486 | 0.09 | 0.25 | 1.00 | ||||||||||
| 2011-06-01 | 2011 | 2011.06 | 1622.346 | 0.09 | 0.25 | 0.00 | 1.00 | |||||||||
| 2011-07-01 | 2011 | 2011.07 | 1652.208 | 0.07 | 0.25 | 0.00 | 1.00 | |||||||||
| 2011-08-01 | 2011 | 2011.08 | 1621.060 | 0.10 | 0.25 | 0.00 | 1.00 | |||||||||
| 2011-09-01 | 2011 | 2011.09 | 1596.944 | 0.08 | 0.25 | 0.00 | 1.00 | |||||||||
| 2011-10-01 | 2011 | 2011.10 | 1592.447 | 0.07 | 0.25 | 0.00 | 1.00 | |||||||||
| 2011-11-01 | 2011 | 2011.11 | 1546.124 | 0.08 | 0.25 | 0.00 | 1.00 | |||||||||
| 2011-12-01 | 2011 | 2011.12 | 1550.043 | 0.07 | 0.25 | 0.00 | 1.00 | |||||||||
| 2012-01-01 | 2012 | 2012.01 | 1568.915 | 0.08 | 0.25 | 0.00 | 1.00 | |||||||||
| 2012-02-01 | 2012 | 2012.02 | 1609.775 | 0.10 | 0.25 | 0.00 | 1.00 | |||||||||
| 2012-03-01 | 2012 | 2012.03 | 1557.859 | 0.13 | 0.25 | 0.00 | 1.00 | |||||||||
| 2012-04-01 | 2012 | 2012.04 | 1537.808 | 0.14 | 0.25 | 0.00 | 1.00 | |||||||||
| 2012-05-01 | 2012 | 2012.05 | 1510.119 | 0.16 | 0.25 | 0.00 | 1.00 | |||||||||
| 2012-06-01 | 2012 | 2012.06 | 1507.596 | 0.16 | 0.25 | 0.00 | 1.00 | |||||||||
| 2012-07-01 | 2012 | 2012.07 | 1535.052 | 0.16 | 0.25 | 0.00 | 1.00 | |||||||||
| 2012-08-01 | 2012 | 2012.08 | 1532.976 | 0.13 | 0.25 | 0.00 | 1.00 | |||||||||
| 2012-09-01 | 2012 | 2012.09 | 1468.681 | 0.14 | 0.25 | 0.00 | 1.00 | |||||||||
| 2012-10-01 | 2012 | 2012.10 | 1476.730 | 0.16 | 0.25 | 0.00 | 1.00 | |||||||||
| 2012-11-01 | 2012 | 2012.11 | 1497.506 | 0.16 | 0.25 | 0.00 | 1.00 | |||||||||
| 2012-12-01 | 2012 | 2012.12 | 1517.425 | 0.16 | 0.25 | 0.00 | 1.00 | |||||||||
| 2013-01-01 | 2013 | 2013.01 | 1582.524 | 0.14 | 0.25 | 0.00 | 1.00 | |||||||||
| 2013-02-01 | 2013 | 2013.02 | 1680.086 | 0.15 | 0.25 | 0.00 | 1.00 | |||||||||
| 2013-03-01 | 2013 | 2013.03 | 1760.359 | 0.14 | 0.25 | 0.00 | 1.00 | |||||||||
| 2013-04-01 | 2013 | 2013.04 | 1832.952 | 0.15 | 0.25 | 0.00 | 1.00 | |||||||||
| 2013-05-01 | 2013 | 2013.05 | 1930.723 | 0.11 | 0.25 | 0.00 | 1.00 | |||||||||
| 2013-06-01 | 2013 | 2013.06 | 2010.604 | 0.09 | 0.25 | 0.00 | 1.00 | |||||||||
| 2013-07-01 | 2013 | 2013.07 | 2094.225 | 0.09 | 0.25 | 0.00 | 1.00 | |||||||||
| 2013-08-01 | 2013 | 2013.08 | 2199.056 | 0.08 | 0.25 | 0.00 | 1.00 | |||||||||
| 2013-09-01 | 2013 | 2013.09 | 2281.080 | 0.08 | 0.25 | 0.00 | 1.00 | |||||||||
| 2013-10-01 | 2013 | 2013.10 | 2374.958 | 0.09 | 0.25 | 0.00 | 1.00 | |||||||||
| 2013-11-01 | 2013 | 2013.11 | 2463.012 | 0.08 | 0.25 | 0.00 | 1.00 | |||||||||
| 2013-12-01 | 2013 | 2013.12 | 2485.248 | 0.09 | 0.25 | 0.00 | 1.00 | |||||||||
| 2014-01-01 | 2014 | 2014.01 | 2498.153 | 0.07 | 0.25 | 0.00 | 1.00 | |||||||||
| 2014-02-01 | 2014 | 2014.02 | 2593.879 | 0.07 | 0.25 | 0.00 | 1.00 | |||||||||
| 2014-03-01 | 2014 | 2014.03 | 2623.027 | 0.08 | 0.25 | 0.00 | 1.00 | |||||||||
| 2014-04-01 | 2014 | 2014.04 | 2660.368 | 0.09 | 0.25 | 0.00 | 1.00 | |||||||||
| 2014-05-01 | 2014 | 2014.05 | 2635.180 | 0.09 | 0.25 | 0.00 | 1.00 | |||||||||
| 2014-06-01 | 2014 | 2014.06 | 2668.354 | 0.10 | 0.25 | 0.00 | 1.00 | |||||||||
| 2014-07-01 | 2014 | 2014.07 | 2704.004 | 0.09 | 0.25 | 0.00 | 1.00 | |||||||||
| 2014-08-01 | 2014 | 2014.08 | 2786.867 | 0.09 | 0.25 | 0.00 | 1.00 | |||||||||
| 2014-09-01 | 2014 | 2014.09 | 2759.284 | 0.09 | 0.25 | 0.00 | 1.00 | |||||||||
| 2014-10-01 | 2014 | 2014.10 | 2705.668 | 0.09 | 0.25 | 0.00 | 1.00 | |||||||||
| 2014-11-01 | 2014 | 2014.11 | 2519.578 | 0.09 | 0.25 | 0.00 | 1.00 | |||||||||
| 2014-12-01 | 2014 | 2014.12 | 2606.700 | 0.12 | 0.25 | 0.00 | 1.00 | |||||||||
| 2015-01-01 | 2015 | 2015.01 | 2683.709 | 0.11 | 0.25 | 0.00 | 1.00 | |||||||||
| 2015-02-01 | 2015 | 2015.02 | 2496.868 | 0.11 | 0.25 | 0.00 | 1.00 | |||||||||
| 2015-03-01 | 2015 | 2015.03 | 2675.202 | 0.11 | 0.25 | 0.00 | 1.00 | |||||||||
| 2015-04-01 | 2015 | 2015.04 | 2698.960 | 0.12 | 0.25 | 0.00 | 1.00 | |||||||||
| 2015-05-01 | 2015 | 2015.05 | 2584.359 | 0.12 | 0.25 | 0.00 | 1.00 |
Step by Step Solution
There are 3 Steps involved in it
1 Expert Approved Answer
Step: 1 Unlock
The Federal Reserve and the Federal Funds Rate The Federal Reserve Fed has two primary tools to alter the supply of reserves Open market operations Th... View full answer
Question Has Been Solved by an Expert!
Get step-by-step solutions from verified subject matter experts
Step: 2 Unlock
Step: 3 Unlock