Lab
Draw the Reserve Market Graph
Supply of reserves starts in the range of ample reserves, crossing the flat lower part of demand. Label both axes and name both curves, choose what the central bank's action moves, move it, then drag the round point to where supply now crosses demand and check your graph. Label the policy rate PR1 and, if it changes, PR2.
Challenges
- Before you check each graph, say whether the policy rate rises, falls or stays the same.
- Buy bonds in an ample-reserves economy. Why does the policy rate not move, and what would have to be true for it to move?
- Move the whole demand for reserves curve instead of its flat parts and read what the page says. Which parts are the administered rates?