The fractional reserve system allows the Federal Reserve to:
2 answers:
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In the graph:
The vertical axis implies the price, the horizontal axis implies the quantity supplied and demanded. The downward line is the demand curve, the upward line is the supply curve.
As it can be seen in the graph, demand curve and supply curve intersect at point A. So that point A implies the equilibrium of the market when the quantity supplied equal to the demand supplied equal to Q1 (S = D = Q1) and the price is P1.
When the price is at P2, the quantity supplied (Q2) is larger than demanded (Q3), resulting in the surplus in the market.
When the price is at P3, the quantity demanded (Q4) is larger than supplied (Q5), resulting in the shortage in the market.
