Is that the saddle height as adjusted for your wife? If so, then not sure you can get the bars even and might want to look for a different bike.
If the saddle height is not set for her, then set that first.
Yes, stem is the correct term for the part connecting the bars to the steerer tube of the fork.
On the stem, examine the stem to see if is an angled stem and if it is installed with angle going down. If so, then flip it so it angles up. See if this gets her bars at the right height.
Second move would be to buy either an adjustable angle stem or buy a stem with more angle than the current stem.
http://www.nashbar.com/bikes/Product...-cpc-_-product