Use the supply and demand analysis of the market for reserves to visually illustrate and explain how the following scenarios may arise in equilibrium: a) An increase in the reserve interest rate increases the interbank rate and makes it equal to the discount rate.   *Please use a federal fund rate and reserves diagram like the one in the example below: **EXAMPLE OF DIAGRAM TO USE IS ATTACHED

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Use the supply and demand analysis of the market for reserves to visually illustrate and explain how the following scenarios may arise in equilibrium:

a) An increase in the reserve interest rate increases the interbank rate and makes it equal to the discount rate.  

*Please use a federal fund rate and reserves diagram like the one in the example below:

**EXAMPLE OF DIAGRAM TO USE IS ATTACHED

Federal fund rate
FFR
FFR
Panel (A)
SR₁ SR2
2
DR
Reserves
Panel (B)
Federal fund rate
SR₁ SR₂
N
1 2
FFR=FFR₁
DR
Reserves
Transcribed Image Text:Federal fund rate FFR FFR Panel (A) SR₁ SR2 2 DR Reserves Panel (B) Federal fund rate SR₁ SR₂ N 1 2 FFR=FFR₁ DR Reserves
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