1. The Federal Funds Market Jill Student Jack Deskoccupier Dan Intheclouds Joanie Willgraduatesoon Austrian Economics May Term 2015 Professor Hal Snarr Westminster College

2. 2528R DRDR i ff 5 2 The Federal Funds Market Demand for reserves – The lower the federal funds rate (i ff ), the lower the opportunity cost of holding reserves and the greater than quantity of excess reserves held.

3. 28 DRDR i ff 2 The Federal Funds Market Demand for reserves – The lower the federal funds rate (i ff ), the lower the opportunity cost of holding reserves and the greater than quantity of excess reserves held. – Q of reserves increases if the rrr is raised R

4. 3028 DRDR i ff 2 The Federal Funds Market Demand for reserves – The lower the federal funds rate (i ff ), the lower the opportunity cost of holding reserves and the greater than quantity of excess reserves held. – Q of reserves increases if the rrr is raised R

5. 3028 DRDR i ff 2 The Federal Funds Market Demand for reserves – The lower the federal funds rate (i ff ), the lower the opportunity cost of holding reserves and the greater than quantity of excess reserves held. – Q of reserves increases if the rrr is raised, checking deposits increase R

6. 3028 DRDR i ff 2 The Federal Funds Market Demand for reserves – The lower the federal funds rate (i ff ), the lower the opportunity cost of holding reserves and the greater than quantity of excess reserves held. – Q of reserves increases if the rrr is raised, checking deposits increase, or a banking shock occurs R

7. The Federal Funds Market i ff 3 Supply of reserves – The horizontal section is determined when the Fed sets the discount rate (i d = 3%). R

8. The Federal Funds Market 28 i ff 3 Supply of reserves – The horizontal section is determined when the Fed sets the discount rate (i d = 3%). – The vertical section is the sum or borrowed reserves (R b = $25b) and non-borrowed reserves (R n = $3b) R

9. SRSR The Federal Funds Market 28 i ff 3 Supply of reserves – The horizontal section is determined when the Fed sets the discount rate (i d = 3%). – The vertical section is the sum or borrowed reserves (R b = $25b) and non-borrowed reserves (R n = $3b) R

10. SRSR 28 i ff 3 DRDR The Federal Funds Market Equilibrium in normal mode – It is determined by the intersection of supply and demand. R

11. SRSR 28 i ff 3 DRDR The Federal Funds Market Equilibrium in normal mode – It is determined by the intersection of supply and demand. – Equilibrium quantity of reserves equals $28b R

12. SRSR 28 i ff 2 3 DRDR The Federal Funds Market Equilibrium in normal mode – It is determined by the intersection of supply and demand. – Equilibrium quantity of reserves equals $28b – Equilibrium federal funds rate equals 2% R