Question

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

Short answer

The federal funds rate will increase because of increased demand.

Step-by-step solution

Concept Introduction

Assuming there is a change from deposit to cash the bank loses holds or checkable stores and should change their save levels and the government supports rate will expand as a result of expanded request.

Explanation

Assuming there is a change from deposit to cash the bank loses holds or checkable deposit and should change their save levels and the government supports rate will expand as a result of expanded request.

Explanation

If the fed wishes to control the government supports rate the appropriate protective market activity is buy protections and increment the non-acquired holds and along these lines rearrange the bureaucratic assets rate to a lower level than if no tasks with the fed had happened.

:Final Answer

The federal funds rate will increase because of increased demand.