Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It increases the interest rates, reducing borrowing.
B
It decreases the interest rates, encouraging borrowing.
C
It has no effect on interest rates or borrowing.
D
It only affects government borrowing, not private borrowing.
Understanding the Answer
Let's break down why this is correct
Answer
Expansionary monetary policy is when a central bank, like the Federal Reserve, increases the money supply to encourage economic growth. When this happens, interest rates usually go down because there is more money available for banks to lend. Lower interest rates make borrowing cheaper for individuals and businesses, which means more people are likely to take out loans for things like homes or new projects. For example, if a person wants to buy a car, a lower interest rate can reduce their monthly payments, making it easier for them to afford the loan. Overall, this policy helps stimulate spending and investment, which can boost the economy.
Detailed Explanation
Expansionary monetary policy lowers interest rates. Other options are incorrect because Some might think that expansionary policy raises interest rates; It's a common mistake to think that monetary policy has no effect.
Key Concepts
borrowers
monetary policy
Topic
Loanable Funds Market Dynamics
Difficulty
medium level question
Cognitive Level
understand
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