Final answer:
The correct answer is option A) buy U.S. Treasury Securities.
Step-by-step explanation:
If the Federal Open Market Committee (FOMC) wants to increase the money supply through open market operations, it will engage in the purchase of U.S. Treasury Securities. This action injects money into the banking system, which subsequently increases the reserves of the banks. As banks have more funds available, they can lend more, which leads to a decrease in interest rates and an increase in the money supply.
To contrast this action with other monetary policy tools, selling U.S. Treasury Securities would have the opposite effect—it would decrease the money supply by taking money out of circulation.
Adjusting the discount rate has a different mechanism: a lower discount rate encourages banks to borrow more from the Federal Reserve to lend out, whilst a higher discount rate discourages such borrowing, affecting the money supply.