How does an expansionary monetary policy influence business investment in an inflationary environment?

Expansionary monetary policy is when a central bank, like the Federal Reserve, lowers interest rates or increases the money supply to encourage spending and investment. In an inflationary environment, prices are rising, which can make businesses cautious about investing. However, lower interest rates mean that borrowing money becomes cheaper for businesses, making it more attractive to take out loans for new projects or expansions. For example, if a company wants to build a new factory but is worried about rising costs, lower interest rates can help them afford the loans needed to invest, even if prices are increasing. Ultimately, this policy aims to stimulate economic growth by encouraging businesses to invest despite inflation.