Expansionary monetary policy lowers interest rates to stimulate economic activity and employment

Steps:

• Recall that expansionary monetary policy aims to increase money supply and lower interest rates to encourage borrowing and investment.
• Identify that reducing interest rates makes loans cheaper, boosting business expansion and job creation.
• Eliminate fiscal policy options like government spending or unemployment benefits, as monetary policy focuses on central bank tools.
• Confirm that lowering interest rates directly addresses employment by increasing aggregate demand.

Why C is correct:

• Expansionary monetary policy involves the central bank reducing interest rates, per the transmission mechanism of monetary policy, to lower borrowing costs and stimulate hiring.

Why the others are wrong:

• A: Reducing government spending is contractionary fiscal policy, which decreases demand and employment.
• B: Expansionary policy increases, not reduces, the money supply to lower rates.
• D: Unemployment benefits are a fiscal tool; reducing them doesn't align with monetary policy goals.

Final answer: C