Which action by the Federal Reserve System is most likely to increase consumer spending?

Decreasing the discount rate to member banks lowers the cost of borrowing for those banks. This action makes it cheaper for banks to obtain funds, which in turn encourages them to lend more to consumers and businesses. When banks have more access to cheaper funds, they are more likely to offer loans with lower interest rates to individuals, such as for mortgages or personal loans.

As borrowing costs decrease, consumers are incentivized to take out loans for significant purchases, leading to an increase in consumer spending overall. This heightened spending can stimulate economic activity, as households are more willing to make purchases when financing is accessible and affordable.

In contrast, increasing the discount rate would raise borrowing costs for banks, discouraging lending. Selling large amounts of government securities would typically absorb liquidity from the banking system, potentially decreasing funds available for lending. Keeping reserve requirements constant does not actively encourage an increase in lending or spending; it simply maintains the status quo without providing a stimulus effect. Thus, decreasing the discount rate is the action most conducive to increasing consumer spending.