Calculate the equilibrium federal funds rate-reserves

Assignment Help Business Economics

Reference no: EM131164493

Suppose that the demand for reserves when the federal funds rate exceeds the interest rate on reserves is given by D=40-(2*i); where I is the federal funds rate in percent and D is expressed in billions of dollars. Suppose that the Fed supplies $28.0 billion in non-borrowed reserves and discount loans for business needs are $1.5 billion. Suppose that the primary credit discount rate is currently set at 6 percent and the interest rate on reserves is 2 percent.

A. Calculate the equilibrium federal funds rate, reserves, and the amount of discount loans for profit.

B. Suppose that the Fed reduces the supply of non-borrowed reserves to $26.0 billion. Now calculate the equilibrium federal funds rate, reserves, and the amount of discount loans for profit.

Reference no: EM131164493

Questions Cloud

Globalization has no effect on terrorism : Many foreign policy and terrorism analysts view U.S. foreign policies in the Middle East as being conducive to terrorism. The killing of Osama bin Laden in 2011 by U.S. Special Forces effectively ended global terrorism. Poverty is not considered to b..

Paper dragon limited partnership makes two products : The Paper Dragon Limited Partnership makes two products, paper and cardboard. The relationship between π, the firm’s annual profit (in thousands of dollars), and its output of each good is: find the output of each good that Paper Dragon LP should pro..

Terrorism is essentially form of psychological warfare : Terrorism is essentially a form of psychological warfare. One of the costs of terrorism is the cost to democracy, with governments justifying violations of individuals’ rights on the grounds of national security. Conditions in Pakistan provide an env..

Supply of and the demand for good are highly elastic : If both the supply of and the demand for a good are highly elastic, a shift of either curve will always result in. If the supply of rental housing increases causing the price to fall and apartment dwellers move into bigger apartments that cost the sa..

Calculate the equilibrium federal funds rate-reserves : Suppose that the demand for reserves when the federal funds rate exceeds the interest rate on reserves is given by D=40-(2*i); where I is the federal funds rate in percent and D is expressed in billions of dollars. Calculate the equilibrium federal f..

Buggy whip manufacturer : Suppose it is 1905 and you are a buggy whip manufacturer. You hear a commotion outside and learn that a gas operated machine (car) had frightened a horse drawn carriage. You then look at your inventory of leather buggy whips and say to yourself (expl..

Would the certainty equivalent for prospect : An individual has the following utility function: u(w) = w^.5 where w = wealth. Using expected utility, order the following prospects in terms of preference, from the most to the least preferred: Without doing any calculations, would the certainty eq..

Internal production could use either of two processes : A manager is trying to decide whether to purchase a certain part or to have it produced internally. Internal production could use either of two processes. If the manager anticipates an annual volume of 10,000 units, which alternative would be the bes..

User Account

All Pages