Expansionary monetary policy is used by central banks to boost economic activity by increasing money supply and cutting interest rates.

Question

BlackTom AI · Accepted Answer

The statement presents a claim about expansionary monetary policy and asks whether it is true or false. 
Option 1: True. Expansionary monetary policy is typically pursued by central banks to stimulate economic activity. In practice, this involves increasing the money supply and lowering short-term interest rates to encourage borrowing, spending, and investment. The rationale is that more liquidity and cheaper credit should raise aggregate demand and push output closer to potential. 
Option 2: False. If one argues that expansionary policy works by decreasing the money supply or by raising interest rates, that would mischaracterize the standard mechanism. A contractionary or tight monetary policy, not expansionary, uses reduced money supply and higher rates to cool an overheating economy or tamp down inflation. The idea that expansionary policy reduces the money supply or increases rates runs counter to the common objectives and tools of expansionary policy. 
Option 1 emphasizes the intended channel: more money in the system and cheaper credit, which generally supports higher consumption and investment. Option 2 describes the opposite toolkit and effect, which would be inconsistent with expansionary aims. 
In summary, understanding the typical policy instruments—money supply changes and interest rate adjustments—helps distinguish expansionary from other policy stances, clarifying why the statement aligns with expansionary aims and why the alternative description would be incorrect.

BECO011 Week 8: Diagnostic Quiz

Expansionary monetary policy is used by central banks to boost economic activity by increasing money supply and cutting interest rates.

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BECO011 Week 8: Diagnostic Quiz

Expansionary monetary policy is used by central banks to boost economic activity by increasing money supply and cutting interest rates.

View Explanation

Log in for full answers

Similar Questions

Which of the following agencies has primary responsibility for setting monetary policy and regulating the banking system?

Why is psychology important in a country’s monetary policy?

If the economy is producing an equilibrium real output that is less than potential output, a(n):

The RBA can stimulate the economy by _____, all of which shifts the aggregate demand to the _____.

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Select the option that correctly shows all the missing words in the following sentence.Monetary policy is the management of ________ by changing money _______ for the purpose of adjusting aggregate _____.

Which of the following is NOT a Monetary policy tool available to the FED?

More Practical Tools for Students Powered by AI Study Helper

Making Your Study Simpler

The RBA can stimulate the economy by _, all of which shifts the aggregate demand to the _.

Select the option that correctly shows all the missing words in the following sentence.Monetary policy is the management of ____ by changing money _ for the purpose of adjusting aggregate ___.