You are given the following information about the market for reserves. The current federal funds rate is 2.5%, the discount rate is 3.5%, the interest rate paid on reserves is 2.5%, and the Fed owns $400 billion in government securities

A) Are there any discount loans outstanding? Why or why not?

B)Suppose the FOMC would like to raise the equilibrium federal funds rate target to 3.0%. Governor Johnson wants to raise the interest rate paid on reserves. Governor Ram ail wants to conduct an open market sale.

a. List the pros and cons of raising the interest rate paid on reserves.

b.List the pros and cons of using an open market sale