Question

What happens when the Fed accommodates expansionary fiscal policy?

A) It reduces the money supply
B) It raises interest rates
C) It increases government spending
D) It increases the money supply

Answer 1

Expansionary monetary policy involves the Federal Reserve increasing the money supply by buying bonds, which lowers interest rates and stimulates borrowing for investment and consumption.

Step-by-step explanation:

Expansionary monetary policy is when the Federal Reserve increases the money supply by buying bonds. This stimulates borrowing for investment and consumption, lowering the interest rate and shifting aggregate demand to the right. The result is a higher price level and higher real GDP, at least in the short run.