What is the primary goal of expansionary monetary policy?

The primary goal of expansionary monetary policy is to stimulate economic growth. This type of policy is implemented by a central bank, such as the Federal Reserve, when it seeks to increase the money supply in the economy. By doing so, the central bank aims to lower interest rates, making borrowing cheaper for consumers and businesses. When borrowing costs decrease, consumers are more likely to take out loans for purchases such as homes and cars, and businesses are encouraged to invest in expansion and new projects.

As spending increases, demand for goods and services rises, leading to higher levels of production and, eventually, job creation. This process helps to reduce unemployment and can lead to overall economic expansion. While managing inflation is important, the immediate aim of using expansionary monetary policy is to boost economic activity during periods of recession or economic stagnation.

In summary, expansionary monetary policy is designed to create a more favorable environment for growth by encouraging spending and investment, thereby fostering a more robust economic recovery.