The graph shows the demand curve for bank reserves, RD. The current quantity of reserves supplied...

 

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The graph shows the demand curve for bank reserves, RD. The current quantity of reserves supplied is $20 billion. Draw a point on the curve that shows the federal funds rate when the quantity of reserves supplied is $20 billion. Label it 1. The Fed wants to set the federal funds rate at 4 percent a year. Draw a supply of reserves curve that achieves the target. Label it. Draw a point to show the new equilibrium federal funds rate. Label it 2. To change the federal funds rate from 5 percent a year to 4 percent a year, the Fed conducts an open market of securities. 8- 7- 6- 5- 4- 3- 2- 1- Federal funds rate (percent per year) RD Q M 10 20 30 40 50 60 70 Reserves on deposit at the Fed (billions of dollars) >>> Draw only the objects specified in the question. The graph shows the demand curve for bank reserves, RD. The current quantity of reserves supplied is $20 billion. Draw a point on the curve that shows the federal funds rate when the quantity of reserves supplied is $20 billion. Label it 1. The Fed wants to set the federal funds rate at 4 percent a year. Draw a supply of reserves curve that achieves the target. Label it. Draw a point to show the new equilibrium federal funds rate. Label it 2. To change the federal funds rate from 5 percent a year to 4 percent a year, the Fed conducts an open market of securities. 8- 7- 6- 5- 4- 3- 2- 1- Federal funds rate (percent per year) RD Q M 10 20 30 40 50 60 70 Reserves on deposit at the Fed (billions of dollars) >>> Draw only the objects specified in the question.

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a Point 1 shows the federal funds rate when quantity of reserves supplied is 20 bill... View the full answer