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Homework answers / question archive / Using graphs of the market for reserves, explain and indicate what happens to the cash rate, borrowed reserves, and nonborrowed reserves in the following situations, holding everything else constant
Using graphs of the market for reserves, explain and indicate what happens to the cash rate, borrowed reserves, and nonborrowed reserves in the following situations, holding everything else constant. Note that different starting positions of the graph can result in different results; your answer must cover all potential scenarios. (a) (10 marks) The RBA decreases the reserve requirement for Australian banks. (b) (5 marks) The RBA engages in a dynamic open market operation to increase the cash rate. (c) (5 marks) A potential economic crisis looms, and the RBA decreases the discount rate to prepare to act as a lender of last resort to any commercial banks seeking help.