Question

If a switch occurs from deposits into currency, what happens to the federal funds rate? use the supply and demand curve of the market for reserves to explain your answer.

Answer 1

If a switch occurs from deposits into currency, it will tend to raise the rate of federal funds because the cost of raising the credit has been increased due to lower required reserves.

What is federal funds rate?

The pace of government reserves is depicted as the pace of revenue that is charged by banks to loan or acquire overabundance saves for the time being. The important condition for the banks is to have a base degree of save in relation to their stores.

On the off chance that there is a change from the stores into cash, it prompts a decrease in the degree of stores causing a decrease in the stock of stores followed by a leftward shift in the stock bend. Likewise, a decline in the stores will in general have lower required saves with banks and hence, causing a leftward shift in the interest bend. In this manner, a change from stores into cash prompts a decrease in the expected stores causing a leftward shift in both organic market bends. What's more, in this way, it will generally raise the pace of government reserves in light of the fact that the expense of raising the credit has been expanded because of lower required holds.

To learn more about federal funds rate, Visit: brainly.com/question/3469921

#SPJ4