Which event would likely increase the supply of money?

The choice indicating that the Fed decreases the discount rate relative to the federal funds rate accurately describes a mechanism that can increase the supply of money in the economy. When the Federal Reserve lowers the discount rate, it effectively reduces the cost of borrowing for banks. This encourages banks to take out more loans from the Federal Reserve. Consequently, banks can then lend more of their reserves to businesses and consumers, further increasing the money supply through the process of money multiplication.

This increase in lending facilitates greater spending in the economy, which can stimulate economic activity. When people have easier access to loans, they are more likely to spend on big-ticket items like homes and cars, which can lead to an overall increase in economic demand.

In contrast to this, measures like open market sales of bonds or increasing reserve requirements would tend to restrict the money supply by assuming that banks have less to lend. Banks holding more excess reserves reflects a more cautious approach to lending, which can suppress the expansion of the money supply. Thus, decreasing the discount rate is a direct mechanism for enhancing the money supply by incentivizing borrowing and subsequent lending activities.