If the Fed wanted to increase the money supply, it would make the open market: (i) purchases and lowers the discount rate. (ii) sales and lower the discount rate. (iii) purchases and raises the discount rate. (iv) sales and raise the discount ra

The correct answer is (i) purchases and lowers the discount rate. When the Fed purchases securities in the open market, it injects money into the banking system, thereby increasing the money supply. Lowering the discount rate also makes it cheaper for banks to borrow money from the Fed, leading to more lending activity and increasing the money supply further. By contrast, selling securities in the open market and raising the discount rate would have the opposite effect, reducing the money supply. Therefore, (i) purchases and lowers the discount rate is the most effective way for the Fed to increase the money supply.