Which of the following would indicate that the monetary authorities were following an expansionary monetary policy?
A) A decline in the growth rate of nominal GDP.
B) Low and falling interest rates.
C) A decline in the M1 money supply.
D) A decline in the M2 money supply.

Question

Quizplus · Accepted Answer

Low and falling interest rates are a typical indicator of an expansionary monetary policy. This policy usually involves increasing the money supply in the economy, leading to increased demand for loans and lower interest rates. Therefore, a decline in interest rates is a good indication that monetary authorities are using an expansionary policy. A decline in the growth rate of nominal GDP (A) would suggest that there is a decrease in overall economic activity and could indicate a contractionary policy. A decline in the M1 (C) or M2 (D) money supply measures would also suggest a contractionary policy, as it implies a decrease in the money supply.

Which of the Following Would Indicate That the Monetary Authorities