The daily reserve supply curve is:

Question

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The daily reserve supply curve is vertical until the federal funds rate equals the discount rate. This is because banks would prefer to hold excess reserves when the federal funds rate is below the discount rate, since they can earn a higher interest rate by lending the reserves out at the discount window. Once the federal funds rate equals the discount rate, banks would rather lend reserves to other banks overnight than hold excess reserves, so the daily reserve supply curve becomes horizontal.

The Daily Reserve Supply Curve Is