Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The central bank lowers interest rates, leading businesses to invest more in capital, resulting in increased production and job creation.
B
The central bank raises interest rates to control inflation, causing consumers to spend less on goods and services.
C
The central bank maintains high interest rates, which encourages saving over spending, leading to a decrease in aggregate demand.
D
The central bank reduces the money supply, causing interest rates to rise and consumers to hold off on big purchases.
Understanding the Answer
Let's break down why this is correct
Answer
Expansionary monetary policy is when a country's central bank decides to increase the money supply to encourage economic growth. For example, if a central bank lowers interest rates, it becomes cheaper for people and businesses to borrow money. This means people might take out loans to buy homes or cars, and businesses might invest in new projects. As a result, spending increases, which can lead to more jobs and higher demand for goods and services. In this way, the economy can grow, helping to reduce unemployment and increase overall economic activity.
Detailed Explanation
When the central bank lowers interest rates, it makes borrowing cheaper. Other options are incorrect because This option suggests raising interest rates, which actually slows down spending; Keeping interest rates high encourages saving instead of spending.
Key Concepts
Expansionary Monetary Policy
Aggregate Demand
Economic Recession
Topic
Expansionary Monetary Policy
Difficulty
hard level question
Cognitive Level
understand
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