Draw the supply and demand diagram for reserves with the curves
intersecting on the downward sloping part of the demand curve –
diagram A. Draw a second graph with the intersection taking place
on the horizontal part of the demand curve – diagram B. Explain the
difference between the two diagrams?
Suppose both diagrams, A and B, represent a specific state of
the world (economy). From a monetary policy standpoint, which state
of the world would the FOMC prefer?