Under the channel system, a shift in the demand for reserves can change the equilibrium overnight rate if that rate is
A) equal to the discount rate.
B) equal to the interest rate on reserves.
C) between the discount rate and the interest rate on reserves.
D) all of the above.

Question

Quizplus · Accepted Answer

Under the channel system, the equilibrium overnight rate is influenced by a shift in the demand for reserves if it falls between the discount rate and the interest rate on reserves. This is because the discount rate sets an upper limit and the interest rate on reserves sets a lower limit on the overnight rate.

Under the Channel System, a Shift in the Demand for Reserves