Business Questions and Answers

Start Your Free Trial

How would the reserve demand curve move? Suppose the Federal Reserve did not pay interest on excess reserves. How would the reserve demand curve? A. Demand curve slope down B. Demand turns flat C. Demand turns D. Reserve Supply is vertical at the point E. Reserve supply becomes horizontal

Expert Answers info

Karen P.L. Hardison eNotes educator | Certified Educator

calendarEducator since 2009

write5,917 answers

starTop subjects are Literature, Social Sciences, and Business

As pohnpei and justaguide say, the demand curve is downward sloping as the relationship between Price and Quantity of a good (in this case bank reserves) at various prices is measured. When factors other than price (in this case interest rate charged for borrowing) affect the demand curve, the affecting influence is seen in a shift of the position of the curve on the graph. Favorable influences shift the curve to the right, while unfavorable influences shift it to the left. Since the withdrawal of interest paid on reserves would be an unfavorable influence (from the point of view of the bankers), the downward sloping demand curve would shift to the left, as pohnpei said, but the demand would not be flat. 

http://www.netmba.com/econ/micro/demand/curve/

http://ecedweb.unomaha.edu/dem_sup/analysis.htm

check Approved by eNotes Editorial

Asher Wismer eNotes educator | Certified Educator

calendarEducator since 2011

write2,867 answers

starTop subjects are Literature, Science, and History

I'll play devil's advocate and say that demand...

(The entire section contains 6 answers and 450 words.)

Unlock This Answer Now


check Approved by eNotes Editorial

Tushar Chandra eNotes educator | Certified Educator

calendarEducator since 2010

write12,554 answers

starTop subjects are Math, Science, and Business

check Approved by eNotes Editorial

accessteacher eNotes educator | Certified Educator

calendarEducator since 2009

write13,728 answers

starTop subjects are Literature, Social Sciences, and History

check Approved by eNotes Editorial

pohnpei397 eNotes educator | Certified Educator

calendarEducator since 2009

write35,413 answers

starTop subjects are History, Literature, and Social Sciences

check Approved by eNotes Editorial

litteacher8 eNotes educator | Certified Educator

calendarEducator since 2008

write15,967 answers

starTop subjects are Literature, History, and Social Sciences

check Approved by eNotes Editorial