Expansionary Monetary Policy Lowers Interest Rates to Boost Economy

Steps:

• Identify expansionary monetary policy as central bank actions to increase money supply and stimulate growth.
• Recall that monetary policy tools include interest rates, reserve requirements, and open market operations.
• Evaluate options: A and B relate to lending or fiscal subsidies, not direct monetary tools.
• Select D, as lowering interest rates directly expands money supply by encouraging borrowing.

Why D is correct:

• Lowering interest rates reduces borrowing costs, increasing money supply and spending per the monetary policy transmission mechanism.

Why the others are wrong:

• A discourages lending, contracting money supply and opposing expansion.
• B provides fiscal subsidies, a government spending tool outside monetary policy.
• C adjusts taxes, a fiscal policy measure not controlled by the central bank.

Final answer: D