Expansionary monetary policy refers to the strategies implemented by a nation’s central bank to increase the money supply and availability of credit within the economy. This is primarily achieved through mechanisms such as reducing interest rates or conducting open market operations, specifically purchasing government bonds and other securities.
The primary aims of expansionary monetary policy are to:
- Stimulate aggregate demand, thereby encouraging economic growth.
- Reduce unemployment by fostering an environment conducive to business investment and job creation.
By making borrowing cheaper and more accessible, this policy encourages increased spending and investment by both individuals and businesses, ultimately boosting overall economic activity.