The tool of monetary policy that allows the Federal Reserve to decrease the money supply is to reduce the discount rate on short-term loans. Option B is correct.
What is discount rate?
The bank rate is also called the discount rate. Insert it is the rate that is charged by the central bank to the commercials.
The discount rate is mainly used in discounting the cashflows for determining the present value as well as the future value of investments or any loan.
The monetary policy permits the Federal Reserve to fall the money supply by reducing the discount rates from the short term loans.
This interest rate is charged to commercial banks and other business or financial institutions for short-term loans, and they take from the Federal Reserve Bank.
Therefore, option B is correct.
To learn more about the discount rates, refer to:
https://brainly.com/question/16997109
