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For each of the scenarios below, explain the shift(s) in: ï‚· Demand : ï‚· Supply : ï‚· Federal...

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Finance

For each of the scenarios below, explain the shift(s) in:

ï‚· Demand :

ï‚· Supply :

ï‚· Federal Funds Rate (FFR) :

ï‚· Money Supply (MS) :

a) The Fed increases reserve requirements.

b) The Fed conducts an open market purchase.

c) The Fed lowers the discount rate below the currentequilibrium federal funds rate.

d) The Fed reduces reserve requirements and sterilizes this byconducting an open market sale of securities. (The term “sterilize”means to leave the Federal Funds Rate (FFR) unchanged)

Answer & Explanation Solved by verified expert
4.3 Ratings (782 Votes)
a When Fed increases the reserve requirement Demand Increase in reserve requirement will lead to reduction of money supply as well as consumer spending in the economy which ultimately causes Decrease in the demand Supply Increase in reserve requirement will also cause reduction in price levels and money available in the economy which ultimately Reduces the supply as well Federal Funds Rates When Fed increases the reserve requirement the banks have less money to lend which leads to Rise in the Federal Funds rates Money    See Answer
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