The supply curve of reserves is a(n)________ line.
A) downward-sloping
B) upward-sloping
C) vertical
D) horizontal

Question

Quizplus · Accepted Answer

The supply curve of reserves is a vertical line because the central bank has the ability to control the quantity of reserves in the banking system. It can increase or decrease the supply of reserves by buying or selling securities in the open market, setting the reserve requirement ratio, and adjusting the interest rate on reserves. Therefore, the supply curve of reserves is not affected by changes in the interest rate or the level of demand for reserves.

The Supply Curve of Reserves Is A(n)________ Line