Question

Monetary policy that lowers the interest rate is called _____ because it _____. (5/5 Points) contractionary; aims to head off inflation expansionary; increases aggregate demand contractionary; reduces saving and increases consumption expansionary; increases short-run aggregate supply

Answer 1

Monetary policy that lowers the interest rate is called expansionary, because it increases aggregate demand.

Step-by-step explanation:

The monetary policy that generates a drop in interest rates is called expansionary, since it generates that, as the eventual benefits from investments in public bonds are lower, the capital is turned over to consumption or to the financing of private investments, thus generating a greater economic growth. In this way, as there is a greater circulation of money, the population demands greater quantities of goods and services, which ends up reactivating the economy.