Question

Why does the Federal Reserve decrease the money supply?

to grow the economy and create jobs
to reduce inflation and maintain stable prices
to lower interest rates and promote borrowing
to keep bank from losing money and failing

Answer 1

to reduce inflation and maintain stable prices

Decreasing the money supply is contractionary monetary policy: it raises interest rates and reduces spending and borrowing, which cools demand and helps bring down inflation. The other choices describe effects of increasing the money supply (grow the economy, lower rates) or relate to bank solvency (handled by liquidity support and regulation, not by tightening money supply).