Answer:
D. lowers the discount rate but not if it auctions more credit
Step-by-step explanation:
Discount rate adjustment and Federal Reserve's auction have the following effects on reserves.
Discount rate adjustment: a higher discount rate will encourage investment in the US economy, thus leading to increased reserves as investment inflows increase.
On the other hand, a lower discount rate encourages investment outflow into other jurisdictions with higher yields, thus reducing reserves.
Auction: auctioning more credit will result in the movement of investment flows into the Federal Reserve (an increase in reserves) as investors invest in auctions. Vice versa.
Therefore, a mix of lower discount rate and not auctioning more credit will result in lower reserves.