ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A central bank may deploy an expansionist monetary policy to reduce unemployment and boost growth during hard economic times. It usually does so by lowering the interest rates and increasing the money supply to boost more employment opportunities.

Detailed explanation-2: -Expansionary monetary policy is a tool central banks use to stimulate a declining economy and GDP. The Federal Reserve has three expansionary monetary policy methods: lowering interest rates, decreasing banks’ reserve requirements, and buying government securities.

Detailed explanation-3: -If the Federal Reserve decides to lower the reserve ratio through an expansionary monetary policy, commercial banks are required to keep less cash on hand and are able to increase the number of loans to give consumers and businesses. This increases the money supply, economic growth and the rate of inflation.

Detailed explanation-4: -A lower reserve requirement means the Federal Reserve is pursuing an expansionary monetary policy. The lower reserve requirement means banks do not need to keep as much cash on hand. This gives them more money for consumer and business loans.

Detailed explanation-5: -Expansionary Monetary Policy Graph Lower interest rates decrease the cost of borrowing money, which encourages consumers to increase spending on goods and services and businesses to invest in new equipment.