Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It generally leads to an increase in employment as businesses invest more due to lower interest rates.
B
It results in a decrease in employment as inflation rises uncontrollably.
C
It has no significant effect on employment levels during a recession.
D
It only impacts employment in certain sectors, leaving others unaffected.
Understanding the Answer
Let's break down why this is correct
Answer
Expansionary monetary policy lowers interest rates, which makes borrowing cheaper for businesses. With cheaper loans, companies are more likely to invest in new projects, hire more workers, and expand production. As employment rises, consumer spending increases, further boosting demand. For example, when a central bank cuts rates, a local factory may take a loan to add a production line, hiring five new workers and creating a multiplier effect in the community.
Detailed Explanation
Lowering interest rates makes loans cheaper. Other options are incorrect because Some think lower rates always cause big inflation that hurts jobs; Many think that a recession means no change.
Key Concepts
Impact on Employment Levels
Topic
Expansionary Monetary Policy Effects
Difficulty
easy level question
Cognitive Level
understand
Practice Similar Questions
Test your understanding with related questions
1
Question 1How might an expansionary monetary policy aimed at stimulating employment affect inflation rates when the central bank is also practicing inflation targeting?
mediumEconomics
Practice
2
Question 2How does the presence of a liquidity trap affect the effectiveness of expansionary monetary policy in reducing unemployment during an economic recession?
mediumEconomics
Practice
3
Question 3If a central bank implements an expansionary monetary policy by lowering interest rates, what is likely to happen to unemployment in the short run?
easyEconomics
Practice
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