Final answer:
To reduce the money supply, the central bank performs open-market operations by selling government securities, which decreases bank reserves and limits the funds available for loans.
Step-by-step explanation:
An open-market operation to reduce the money supply involves the central bank selling government securities. When the central bank sells U.S. Treasury bonds, it effectively reduces the quantity of bank reserves because banks use their reserves to buy these bonds.
As a result, there’s less money available for banks to loan out, leading to a decreased money supply in the economy. Open market operations are thus a key tool in monetary policy, with the targeted interest rate usually being the federal funds rate.