What is the objective of expansionary monetary policy?

The objective of expansionary monetary policy is to stimulate economic activity. This policy is implemented by central banks, such as the Federal Reserve, primarily during times of economic downturn or recession. By lowering interest rates or increasing the money supply, expansionary monetary policy aims to encourage borrowing and investing. When interest rates are reduced, it becomes cheaper for consumers and businesses to take loans, which typically leads to increased consumption and investment spending.

This increase in spending can help boost aggregate demand, leading to higher output and potentially increasing employment levels as businesses respond to growing demand by expanding operations. Therefore, the purpose of expansionary monetary policy is fundamentally about enhancing overall economic activity to support recovery or growth in the economy.