Equilibrium in the market for reserves means which of the following?
A)The quantity demanded exceeds the quantity supplied by a large consistent amount.
B)The quantity supplied exceeds the quantity demanded by only a small consistent amount.
C)The quantity demanded equals the quantity supplied.
D)The fed funds rate equals the fed fund rate target set by the FOMC.

Question

Quizplus · Accepted Answer

Equilibrium in the market for reserves occurs when the quantity demanded by banks for reserves equals the quantity supplied by the Fed. This means that there is neither excess demand nor excess supply, and the market clears at a particular interest rate, which is known as the federal funds rate. Therefore, Choice C is the correct answer. Choices A and B describe situations where the market is not in equilibrium, and Choice D refers to the fed funds rate target set by the Fed, which may or may not correspond to the equilibrium rate depending on market conditions.

Equilibrium in the Market for Reserves Means Which of the Following