For example, in the long run, price stability complements efforts to achieve maximum output and employment; but in the short run, some tension can arise between efforts to reduce inflation and efforts to maximize employment and output. ... Demand for Reserves The demand for reserves has two components: required reserves and excess reserves. ... Changes in the federal funds rate reflect the basic supply and demand conditions in the market for reserves. Equilibrium exists in the reserves market when the demand for required and excess reserves equals the supply of borrowed plus non-borrowed reser...

• Word Count: 4049
• Approx Pages: 16
• Grade Level: Undergraduate