The graph shows the demand curve for reserves in the market for bank reserves. The federal funds target rate is 4 percent. Draw the supply curve of reserves to achieve the federal funds target rate. Label it. Draw a point at the equilibrium in the market for bank reserves. Choose the statement that is incorrect. O A. Banks hold reserves to meet the required reserve ratio and so that they can make payments. OB. The Fed's open market operations determine the demand for reserves. OC. The higher the federal funds rate, the smaller is the quantity of reserves demanded. O D. Bank reserves are costly to hold because they can be loaned in the federal funds market and earn the federal funds rate. Federal funds rate (percent per year) 8.00 7.00- 6.00- 5.00- 4.00- 3.00- RD 2.00+ 75 0 25 50 100 Reserves on deposit at the Fed (billions of dollars)

Assignment 11 Chapter 15 1. What are the 4 Policy tools of the Federal Reserve? A. В. С. D. 2. Using the 3 policy tools listed below, how does the Fed increase the Money Supply and Expand the Economy? A. Reserve Requirement: Decrease or Increase B. Open Market Operations: Sale or Purchase C. Discount/Fed Funds Rate: Raise or Lower

Explain what will happen to the money multiplier process if there is an increase in the reserve requirement? O A. An increase in the reserve requirement means that banks will be less likely to have your money when you demand it, but it would increase the money multiplier OB. An increase in the reserve requirement means that banks will be more likely to have your money when you demand it, increasing the money multiplier OC. Since a greater portion of each deposit is being lent out, the multiplier will increase. This means more loans lent and more economic growth. OD. Since a smaller portion of each deposit is being lent out, the multiplier will decrease. This means fewer loans lent and less economic growth.

Assume that the Federal Reserve finds that the banking system has inadequate reserves, that is, the supply curve falls in the downward sloping portion of the demand curve for reserves.  Under an ample reserves regime, we expect the Federal Reserve to A   use open market purchases of government securities to reduce the supply curve of reserve. B   use open market purchases of government securities to increase the supply curve of reserve. C   use open market sales of government securities to reduce the supply curve of reserve. D   use open market sales of government securities to increase the supply curve of reserve.