Which policy does the Federal Reserve use to influence the money supply through various methods?

The Federal Reserve uses monetary policy to influence the money supply and overall economic conditions in the United States. Monetary policy primarily involves managing interest rates and the total amount of money circulating in the economy. This is accomplished through various tools, including open market operations, the discount rate, and reserve requirements.

For example, when the Fed wants to increase the money supply, it can lower interest rates, making borrowing cheaper for businesses and consumers, which encourages spending and investment. Conversely, if the Fed wants to decrease the money supply to combat inflation, it can raise interest rates, which discourages borrowing and slows down economic activity.

This distinction is important as monetary policy is solely the purview of the Federal Reserve, whereas fiscal policy pertains to government spending and revenue generation decisions made by Congress and the Administration. The other options—discretionary policy and regulatory policy—are less about direct manipulation of the money supply and more focused on specific regulatory frameworks and responsive measures, respectively. Thus, monetary policy is the most accurate term to describe the Federal Reserve's tools and interventions in the money supply.