Suppose the FED expects a change in Treasury deposits which will cause reserves to increase by $5 billion for a short period of time, but then decline to their original level.

a. Describe the open market operation that the FED would use to maintain the level of reserves in the banking system during this temporary increase in reserves due to the change in Treasury deposits.

b. What is primary credit? Also where does primary credit lending take place? Finally, what role does primary credit lending play in the market for federal funds?