Assuming all else equal,the demand curve for reserves in an economy shifts to the left.Which of the following could explain this shift?
A) Rapid expansion of the economy
B) Rapid contraction of the economy
C) An increase in the federal funds rate
D) A decrease in the federal funds rate

Question

Quizplus · Accepted Answer

A rapid contraction of the economy would decrease demand for reserves as banks would have less demand for loans and less need to hold excess reserves. A rapid expansion of the economy could potentially increase demand for reserves. Changes in the federal funds rate would affect the supply of reserves, not the demand for reserves.

Assuming All Else Equal,the Demand Curve for Reserves in an Economy