Final answer:
Raising the Federal Reserve's discount rate leads to decreased money supply, not increased borrowing, lower interest rates, or stimulated economic growth. The correct answer is therefore b) Decreased money supply.
Step-by-step explanation:
When the Federal Reserve Board raises the discount rate, the expected outcome should be decreased money supply. Since borrowing from the Federal Reserve becomes more expensive, commercial banks borrow less, which means they have fewer reserves to create loans. With fewer loans available, the overall money supply in the economy decreases. As a result, this decrease in money supply tends to induce higher market interest rates, not lower ones, thereby slowing potential economic growth. Therefore, the correct answer to this question is b) Decreased money supply.
In relation to the financial market, an increase in the supply of money, which would mean more lending potential for banks, typically leads to a decline in interest rates because more funds are available for borrowing. Conversely, when the Federal Reserve raises the discount rate, it does not stimulate the economy nor does it lower interest rates; instead, it makes borrowing more expensive and can help to control inflationary pressures by restricting the availability of money.