An easy money policy of expanding the money supply (that is, stimulating higher growth rates for one or more monetary aggregates) may appear to promote ________, but it may also raise the prospect of inflation, affect the exchange rate disadvantageously, and increase interest rates.

Question

Quizplus · Accepted Answer

An easy money policy, by expanding the money supply, aims to stimulate economic growth and potentially lower interest rates in the short term by making more funds available for borrowing. However, over time, this can lead to inflation, negatively impact exchange rates, and ultimately result in higher interest rates as a countermeasure to inflation.

An Easy Money Policy of Expanding the Money Supply (That