How does the discount rate primarily affect the money supply?

It influences the amount banks borrow from the Fed, thus impacting the money supply.

Which of the following statements best describes fractional reserve banking and the role of the bank reserve requirement?

Banks loan out most deposits but must keep a fraction in reserve; the reserve requirement influences lending capacity.

I can differentiate between fiscal and monetary policy and their potential impacts on the economy.

1
Monetary policy refers to how the government regulates the amount of money in circulation, and the primary task for this is given to the Federal Reserve System.
2
Fiscal policy refers to the government’s ability to raise taxes and spend the money it raises.
3
Because Americans are generally reluctant to raise taxes and the government has a limited ability to cut spending, monetary policy becomes its major lever in broad-based macroeconomic policy.