During a severe economic downturn, the central bank decides to implement an expansionary monetary policy by lowering interest rates. As a result, a small business owner named Sam expects to increase his borrowing to invest in new equipment. How might this decision affect the overall economy in terms of aggregate demand?

When a central bank lowers interest rates, it makes borrowing cheaper for everyone, including small business owners like Sam. This means Sam can take out a loan to buy new equipment, which helps him grow his business. As Sam invests in this equipment, he may need to hire more workers, which creates jobs and increases income for those workers. With more people earning money, they will likely spend more on goods and services, leading to higher overall demand in the economy. This increase in spending is called aggregate demand, and it can help the economy recover during a downturn.