When the Fed decides to enact expansionary monetary policy, the supply of loanable funds _______ and the demand for loanable funds _______.
A) increases; decreases
B) decreases; increases
C) decreases; decreases
D) increases; increases

Question

Quizplus · Accepted Answer

When the Fed enacts expansionary monetary policy, they are increasing the money supply through actions such as buying government bonds or lowering the discount rate. This increases the supply of loanable funds (money available for lending) as banks have more money to lend out. At the same time, the policy is designed to stimulate economic activity and encourage borrowing, which increases the demand for loanable funds. Therefore, both the supply and demand for loanable funds increase.

When the Fed Decides to Enact Expansionary Monetary Policy, the Supply