In the market for settlement balances, when the overnight interest rate is below the bank rate and above the bank rate less 50 basis points, the supply curve of reserves is ________.
A) vertical
B) horizontal
C) positively sloped
D) negatively sloped

Question

Quizplus · Accepted Answer

The supply curve of reserves is vertical in this scenario because the central bank fully controls the supply of reserves, making it independent of the interest rate as long as it is within the specified range.

In the Market for Settlement Balances, When the Overnight Interest