Expansionary monetary policy will:
A) Reduce the lending capacity for banks.
B) Raise interest rates.
C) Encourage people to borrow more money.
D) Reduce the equilibrium price level.

Question

Quizplus · Accepted Answer

An expansionary monetary policy involves increasing the money supply and lowering interest rates to encourage borrowing and spending. Therefore, option C is correct as it says that it encourages people to borrow more money. Option A is incorrect because it suggests that expansionary monetary policy reduces lending capacity, which is not true. Option B is also incorrect because expansionary policy aims to decrease interest rates, not raise them. Option D is incorrect because an expansionary policy is designed to increase the price level to promote economic growth.

Expansionary Monetary Policy Will