The supply curve for reserves is ________ when the federal funds rate is below the discount rate and ________ when the federal funds rate is above the discount rate.
A) upward sloping; horizontal
B) upward sloping; vertical
C) vertical; horizontal
D) vertical; downward sloping

Question

Quizplus · Accepted Answer

When the federal funds rate is below the discount rate, the supply curve for reserves is vertical because the central bank supplies reserves at a fixed quantity. When the federal funds rate is above the discount rate, the supply curve becomes horizontal as banks can borrow unlimited reserves at the discount rate.

The Supply Curve for Reserves Is ________ When the Federal