The supply curve of reserves in an economy is horizontal when
A)the federal funds rate is greater than the seasonal credit discount rate.
B)the federal funds rate is less than the secondary credit discount rate.
C)the federal funds rate equals the primary credit discount rate.
D)the federal funds rate is less than the primary credit discount rate.

Question

Quizplus · Accepted Answer

When the Federal Funds Rate equals the Primary Credit Discount Rate, it means that the Federal Reserve is providing enough reserves to meet the demand of banks at that rate. As a result, the supply curve of reserves is horizontal, indicating that the quantity of reserves supplied is not affected by changes in the interest rate.

The Supply Curve of Reserves in an Economy Is Horizontal