ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Also known as loose monetary policy, expansionary policy increases the supply of money and credit to generate economic growth. A central bank may deploy an expansionist monetary policy to reduce unemployment and boost growth during hard economic times.

Detailed explanation-2: -During a recession, loose monetary policy can help the economy recover by sparking aggregate demand because individuals and firms are able to borrow more to spend and invest.

Detailed explanation-3: -decrease their interest rates to encourage borrowing. increases investment and consumer spending which increases AD-this would be a policy that would be used to fight a recession.

Detailed explanation-4: -Monetary policy can offset a downturn because lower interest rates reduce consumers’ cost of borrowing to buy big-ticket items such as cars or houses. For firms, monetary policy can also reduce the cost of investment.

Detailed explanation-5: -Monetary policy attempts to increase aggregate demand during recession by increasing the growth of the money supply. The theory of liquidity preference suggests that increasing the money supply will cause interest rates to fall. Lower interest rates cause higher investment spending which increases aggregate demand.