ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Expansionary monetary policy is when a central bank uses its tools to stimulate the economy. That increases the money supply, lowers interest rates, and increases demand. It boosts economic growth.

Detailed explanation-2: -The Federal Reserve has three expansionary monetary policy methods: lowering interest rates, decreasing banks’ reserve requirements, and buying government securities.

Detailed explanation-3: -Conducting monetary policy If the Fed, for example, buys or borrows Treasury bills from commercial banks, the central bank will add cash to the accounts, called reserves, that banks are required keep with it. That expands the money supply.

Detailed explanation-4: -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-5: -Expansionary monetary policy will reduce interest rates and shift aggregate demand to the right from AD0 to AD1, leading to the new equilibrium (Ep) at the potential GDP level of output with a relatively small rise in the price level.