There is a portion of the supply curve for reserves that is vertical, since the Fed controls the supply of reserves when the equilibrium Federal funds rate is sufficiently low.

Question

Quizplus · Accepted Answer

The vertical portion of the supply curve for reserves reflects the Federal Reserve's control over the supply of reserves, especially when the equilibrium Federal funds rate is low, indicating that the Fed can set the supply of reserves independently of the market interest rate.

There Is a Portion of the Supply Curve for Reserves