What action can the Federal Reserve take to increase the money supply available to member banks?

To increase the money supply available to member banks, the Federal Reserve can lower the minimum reserves required by those banks. This action allows banks to hold onto less cash and instead, lend out a greater portion of their deposits. When banks are required to keep lower reserves, they can create more loans, which in turn multiplies the amount of money circulating in the economy. This is a crucial mechanism for stimulating economic activity, particularly during periods when growth is sluggish.

The method of adjusting reserve requirements is a direct approach to influencing the money supply, as it directly impacts how much banks can lend. When banks have more money to lend, it helps to increase the overall liquidity in the financial system, promoting spending and investment.

Other options would not achieve the same result: raising interest rates generally reduces the money supply because it makes borrowing more expensive; selling government bonds (as indicated in one of the incorrect choices) reduces the money supply because it takes cash out of circulation in exchange for bonds; and raising the discount rate would also discourage banks from borrowing from the Federal Reserve, thereby tightening the money supply instead of increasing it.