Expansionary Monetary Policy Boosts Employment

Steps:

• Identify monetary policy as actions by central banks to control money supply and interest rates.
• Recognize that increasing employment requires stimulating economic activity through lower borrowing costs.
• Evaluate options for measures that directly expand money supply and reduce interest rates.
• Select the pair that aligns with these monetary tools to encourage investment and hiring.

Why B is correct:

• Expansionary monetary policy, per the IS-LM model, increases money supply and lowers interest rates, reducing borrowing costs for businesses to invest and hire more workers.

Why the others are wrong:

• A: Exchange rate depreciation is monetary but increasing spending is fiscal, not a pure monetary pair.
• C: Subsidies and tax cuts are fiscal policies, not monetary measures controlled by central banks.
• D: Income tax reduction and infrastructure spending are fiscal tools, outside monetary policy scope.

Final answer: B