Expansionary Monetary Policy Boosts Economic Activity

Steps:

• Expansionary monetary policy aims to stimulate growth by increasing money supply, lowering interest rates, and enhancing credit availability.
• Evaluate options based on these indicators: increased money supply and credit signal expansion, while decreased ones signal contraction; lower interest rates encourage borrowing.
• Compare choices: A mixes expansion (credit up) with contraction (rates up, supply down); B aligns all positively; C and D include contractions.
• Select B as it fully matches expansionary criteria.

Why B is correct:

• It embodies expansionary policy per the Taylor Rule, where lower interest rates and higher money supply/credit directly stimulate investment and consumption.

Why the others are wrong:

• A: Contradictory—higher rates and lower supply counteract credit increase, limiting expansion.
• C: Reduced credit and higher rates offset money supply gain, muting stimulus.
• D: All elements (reduced credit/supply, lower rates) indicate contraction, not expansion.

Final answer: B