The effect of expansionary monetary policy on aggregate demand is as follows:
A) the decrease in money supply causes the interest rates to drop and investment and production to increase.
B) the increase in money supply causes the interest rates to grow and investment and production to increase.
C) the increase in money supply causes the interest rates to drop and investment and production to increase.
D) the increase in money supply causes the interest rates to drop and investment and production to decrease.

Question

Quizplus · Accepted Answer

Expansionary monetary policy involves increasing the money supply in the economy. This increase in money supply leads to a decrease in interest rates as there is more money available for borrowing. Lower interest rates then encourage both investment and production, ultimately increasing aggregate demand.

The Effect of Expansionary Monetary Policy on Aggregate Demand Is