When Central bank sells (open market sell) securities , it reduces the lending capacity of commercial banks which in turn reduces money supply. See panel D ,In that panel supply curve has shifted from S0 to S1. Interest rate has risen.
So, Option A, Panel (D)
All the best:))
In case of any query feel free to leave your doubt in comment section.
Figure 13-1 Federal funds rate Federal funds rate Quantity of Reserves Cuantity of Recru Federal funds...
Federal funds rate (percent per year) The graph shows the demand curve for bank reserves, RD. The current quantity of reserves supplied is $20 billion. 7 Draw a point on the curve that shows the federal funds rate when the quantity of reserves supplied is $20 billion. Label it 1 6- 5- t 4 percent a year The Fed wants to set the federal funds rate Draw a supply of reserves curve that achieves the target. Label it Draw a...
8. Federal funds rate targeting Aa Aa In conducting monetary policy, the Federal Open Market Committee (FOMC) targets a Federal funds rate and the Federal Reserve Bank of New York uses open-market operations to achieve and maintain the target rate. Suppose that the following graph shows the demand for Federal funds. Use the orange line (square symbols) to plot the supply of Federal funds (also called "the supply of excess reserves") when the FOMC targets a Federal funds rate of...
1. The interest rate in the federal funds market: a. is an interest rate that is largely unaffected by the policies of the Fed. b. will fall if the Fed sells bonds and, thereby, reduces the reserves available to banks. c. is determined by the imposition of price controls imposed by the Fed. d. rises when the quantity of funds demanded by banks seeking additional reserves exceeds the quantity supplied by banks with excess reserves. 2. If there is a...
Demand for Excess Reserves 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% Federal Funds Rate 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% o 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 $Billion The graph above shows the commercial banks' demand function for federal funds. The guy who was constructing this graph forgot to incorporate the effects of discount rate and interest on reserves into the graph. The discount rate is 4.50 percent and the interest on...
Use Figure to answer the following questions. Federal Funds Rate The discount rate is the initial equilibrium federal funds rate. R01 Rd Rd2 RS In the federals funds market, the Federal Reserve can maintain a federal funds rate between the interest paid on reserves and the discount rate without using open market operations. O A. True OB. False NBR* Quantity of Reserves, R
10. The discount rate and the federal funds rate The discount rate is the interest rate on loans that the Federal Reserve makes to banks. Banks occasionally borrow from the Federal Reserve when they find themselves short on reserves. A lower discount rate banks' incentives to borrow reserves from the Federal Reserve, thereby the quantity of reserves in the banking system and causing the money supply to The federal funds rate is the interest rate that banks charge one another...
In the market for reserves, show the impact on the federal funds rate from an open market operations sale.
The Federal Reserve has set the discount rate at 1%. It pays 0% on Reserves. The current Federal Funds Rate is .5%. Show above what happens when the Fed uses open market operations to decrease the Federal Funds rate to 0%. How do they decrease the rate?
4. Draw a supply-demand diagram for the market for reserves to answer each of the following questions. a. Show the effect on the federal funds rate and the quantity of reserves if the Fed simultaneously increased the reserve requirement and conducted an open market purchase of securities. Would the federal funds rate increase, decrease or would the effect be uncertain? b. Draw a graph showing an increase in the discount rate which increases the federal funds rate.
Federal Funds Rate The graph to the right illustrates how the Fed uses discounting to keep the federal funds rate from rising far above the federal funds target. It shows a rightward shift of the demand curve for reserves from R o R. The initial equilibrium is at point 1, where the discount rate (id) is above the federal funds rate, which is equal to its target level, i#. The shift moves the equilibrium to point 2, where the federal...