The graph in this exercise represents the reserves market. Banks must hold a fixed proportion of their deposits on reserve with the Federal Reserve. If a bank falls short of its required level of reserves, it can borrow from other banks or it can borrow from the Fed. If the bank falls short on reserves or borrows from other banks, it is charged the Federal Funds rate, FFR. If the bank borrows from the Fed, it is charged the discount rate. Banks that have excess reserves are the suppliers to the market. The demand and supply for reserves are shown in the graph. The “Total reserve demand” curve is downward sloping, representing the negative relationship between FFR and reserve demand. The “Total reserve supply” curve is upward sloping, representing the positive relationship between FFR and reserve supply. Non-borrowed reserves, NBR, are the total amount of reserves held by banks that are not borrowed in the reserves market. This is where the Fed affects the market. When the Fed buys and sells U.S. government securities, it uses reserves as a medium of exchange. Let's see how this works.