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If there is a change in the federal funds rate from a target rate due to...

If there is a change in the federal funds rate from a target rate due to a decrease in the demand for reserves at the Fed, the Fed can maintain the target by doing which of the following? Explain your answer and illustrate graphically.

(a) shift the supply curve of reserves to the left.

(b) shift the supply curve of reserves to the right.

please provice complete answers to both parts of the problem (a graph for each) as the first responder did not (this is the second time posting this qu). Thanks

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Answer #1

Causing the supply curve of reserves to shift to the left.

because, when the demand for reserves decrease, and it cause to change the federal funds rate . that is there is a decrease in demand, and supply remain the same, then the federal funds rate will decrease because of mechanism of demand and supply . to offset this change, the federal funds rate must decrease the supply the reserves to maintian the federel funds target rate. In the below figure, the federal funds rate is r , but when the demand decrease it will decrease the rate to r* , to offset this change, the supply curve shift to the left and equilbruim rate will achieved

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