Expansionary monetary policy, by increasing the money supply, also increases interest rates and recessionary gaps.

Question

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Expansionary monetary policy is aimed at boosting economic growth by increasing the money supply, reducing interest rates, and filling recessionary gaps. When the money supply increases, interest rates tend to fall as a result of increased lending by banks. This, in turn, generates more spending by consumers and businesses, thereby closing the recessionary gaps.

Expansionary Monetary Policy, by Increasing the Money Supply, Also Increases