Choice "D" is correct. An increase in the discount rate discourages borrowing by member banks and thus decreases the money supply. A decrease in the money supply causes interest rates to rise.
Choice "c" is incorrect. An increase in the discount rate causes the money supply to decrease, not increase.
Choice "a" is incorrect. An increase in the discount rate causes the money supply to decrease, not increase.
Choice "b" is incorrect. A decrease in the money supply causes interest rates to rise, not fall.
