Answer: The fed can reduce they money supply by increasing the discount rate.
Explanation: If the Federal Reserve wants to shift to a more restrictive monetary policy and reduce the money supply they can increase the discount rate. The discount rate is the rate that the fed charges commercial banks to borrow money when they need to add to their reserves. If the fed charge a higher rate, then the commercial bank will in turn charge a higher rate. This higher rate will lead to less money being borrowed, which is reducing the money supply.
