Suppose that in December the public wants to hold more currency to buy gifts andmake donations to local charities and so withdraws cash from their bank accounts.(i) Draw a diagram illustrating how the shift from deposits into currency affectsthe equilibrium in the market for reserves.(ii) What happens to the overnight interest rate? Your answer should include abrief explanation (i.e., a few sentences).
Suppose that in December the public wants to hold more currency to buy gifts andmake donations to local charities and so withdraws cash from their bank accounts.(i) Draw a diagram illustrating how the shift from deposits into currency affectsthe equilibrium in the market for reserves.(ii) What happens to the overnight interest rate? Your answer should include abrief explanation (i.e., a few sentences).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Suppose that in December the public wants to hold more currency to buy gifts and
make donations to local charities and so withdraws cash from their bank accounts.
(i) Draw a diagram illustrating how the shift from deposits into currency affects
the equilibrium in the market for reserves.
(ii) What happens to the overnight interest rate? Your answer should include a
brief explanation (i.e., a few sentences).
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