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ECO 4223 Homework 9 - In the market for reserves, the federal funds interest rate

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ECO 4223 Homework 9

In the market for reserves, the federal funds interest rate is currently 11% while the discount rate is at 13%.  If the Federal Reserve Bank aims to increase the equilibrium interest rate, then it can

 
lower the reserve requirements
 
increase the discount rate
 
sell securities
 
decrease the discount rate


Say that there is a large rise in demand for reserves by a number of different banks.  In the market for reserves, the equilibrium interest rate should never go above
 

ier
 
id
 
10%
 
the required reserve ratio


Suppose that in the market for reserves, the equilibrium interest rate, iff is currently below id.  If the Federal Reserve bank decides to increase the required reserve ratio, then we would expect that the ____ should ____.
 
discount rate; rise
 
discount rate; fall
 
iff rate; fall
 
iff; rise


The Federal Reserve bank buys securities and after the purchase, the equilibrium interest rate in the market for reserves doesn't change at all.  This implies that prior to the purchase, the equilibrium iff rate is
 
greater than id
 
equal to id
 
less than id
 
is exactly 1%


Suppose that the FR Bank raises the required reserve ratio for commercial banks, but does this for reasons other than trying to change the federal funds rate, which was below the discount rate prior to the policy change.  If the FR Bank wants a defensive operation to counter the change in the interest rate, it can
 
buy securities
 
raise the discount rate
 
sell securities
 
none of the above

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