Expansionary monetary policy links growth to employment

Steps:

• Reduced interest rates lower borrowing costs, boosting investment and consumption.
• This shifts aggregate demand rightward, increasing output and growth.
• Higher output requires more labor in the short run.
• Per the Phillips curve, short-run trade-off shows falling unemployment with rising demand.

Why A is correct:

• Lower interest rates stimulate demand, raising GDP and employment via Okun's law, which ties output growth to unemployment reductions.

Why the others are wrong:

• B: Expansionary policy risks higher inflation, undermining price stability.
• C: It favors asset owners and borrowers, potentially widening income gaps.
• D: Currency depreciation from low rates boosts exports but may not quickly reduce deficits amid short-run lags.

Final answer: A