An expansionary monetary policy whereby a central bank buys back predetermined amounts of government bonds or other financial assets to increase liquidity and stimulate the economy. This best describes...

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The question describes an expansionary monetary policy where a central bank purchases predetermined amounts of government bonds or other financial assets to inject liquidity into the economy and stimulate activity.
Option A: A budget deficit. This is a fiscal concept referring to when expenditures exceed revenues in the government budget, not a monetary policy action. It does not capture the act of central bank asset purchases or liquidity expansion.
Option B: A restrictive monetary policy. This would involve actions that tighten the money supply or raise interest rates to slow the economy, which is the opposite of expansionary liquidity infusion described in the prompt.
Option C: Inflation. While inflation can be a consequence of expansionary policy, it is not a description of the policy instrument itself. The statement is about a tool, not the outcome.
Option D: Quantitative easing. This precisely matches the description: central banks buy back government bonds or other securities to inject liquidity, expand the money supply, and stimulate economic activity, which is the classic definition of quantitative easing.

MGM101H5 F LEC0101 Quiz #2

An expansionary monetary policy whereby a central bank buys back predetermined amounts of government bonds or other financial assets to increase liquidity and stimulate the economy. This best describes...

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