On a graph,if the x-axis measures the quantity of bank reserves and the y-axis measures the federal funds interest rate,the demand curve for bank reserves ________.
A) slopes upward
B) slopes downward
C) is perfectly elastic
D) is perfectly inelastic

Question

Quizplus · Accepted Answer

The demand curve for bank reserves slopes downward because as the quantity of reserves increases, banks have excess funds to lend out, which puts downward pressure on the federal funds rate. As the quantity of reserves decreases, banks have less funds to lend out, which puts upward pressure on the federal funds rate. Therefore, there is an inverse relationship between the quantity of reserves and the federal funds rate, resulting in a downward-sloping demand curve.

On a Graph,if the X-Axis Measures the Quantity of Bank