Question

By lowering the interest rate to bolster borrowing and spending to increase aggregate demand, the Fed is instituting which type of monetary policy?

A. Expansionary
B. Restrictive
C. Tight
D. Contractionary

Answer 1

Expansionary monetary policy lowers interest rates and stimulates borrowing to increase aggregate demand in the economy.

Step-by-step explanation:

A monetary policy that lowers interest rates and stimulates borrowing is an expansionary monetary policy or loose monetary policy. Conversely, a monetary policy that raises interest rates and reduces borrowing in the economy is a contractionary monetary policy or tight monetary policy. The Federal Reserve uses expansionary monetary policy to increase aggregate demand and stimulate economic growth.