Question

"When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is: a. following a loose monetary policy. b. following a tight monetary policy. c. following a contractionary monetary policy. d. reversing quantitative easing."

Answer 1

The correct answer to the following question is A) following a loose monetary policy.

Step-by-step explanation:

When the government has implemented loose monetary policy , it means the government wants to increase the money supply in the economy. And for this they have allowed central bank to buy government bonds from open market , which will increase money supply in the economy. Due to this the interest rate would decrease and the cost of borrowing will decrease , so this will result in increase in investment.