Explain how the Fed can increase the supply of reserves to ensure that there are ample reserves in the reserve market.
The Policy Rate (PR) is found at the intersection of the supply and demand. When the supply intersects the demand at the lower end (when there are ample reserves), small changes in the supply do not change the policy rate. As a result, open market operations do not change the policy rate in ample reserves. The policy rate is targeted by changing the interest on reserves rate to increase or decrease the lower limit, and the discount rate to increase or decrease the higher limit.