... What is one of the advantages of monetary policy over fiscal policy. Let us discuss what expansionary monetary policy means in the macroeconomic sense. Fig. Disclaimer Copyright, Share Your Knowledge
So let's start with monetary policy, and talk about the pros and cons of it. Expansionary monetary policy may be used to help reduce the unemployment rate in recession periods. The sector of the government that handles the economy using these policies in a recession is the Federal Reserve. So long we have described the central bank’s controls from the standpoint of combating inflation by contraction of the money supply. Expansionary fiscal policy refers to reducing taxes and increasing government spending to stimulate the economy. Because the R.B.I. Fiscal policy is the sister strategy to monetary policy through which a central bank influences a ... and the economic growth are called expansionary. Monetary policy involves using interest rates and other monetary tools to influence the levels of consumer spending and aggregate demand (AD). In the Keynesâ theory, rate of interest is determined by the demand for and supply of money. In theory, expansionary monetary policy should cause higher economic growth and lower unemployment. It lowers the value of the currency, thereby decreasing the exchange rate. In an expansionary monetary policy, where banks are lowering interest rates on loans and mortgages, more business owners would be encouraged to expand their ventures, as they would have more available funds to borrow with affordable interest rates. Interest rates on bonds are reduced which helps in investment. ÎY 1/4, t > 0 for contractionary traditional shocks and ÎY 1/4, t < 0 for expansionary ones). (Please note: I am not asking you how monetary policy works. Some central banks are tasked with … The economy still being weak, it started purchasing government securities from January 2009 for a total value of $3.7 trillion. The Federal Reserve And Expansionary Monetary Policy 1657 Words | 7 Pages. The lower interest rates make domestic bonds less attractive, so the demand for â¦ This loan-making link may reduce the effectiveness of monetary policy in fighting unemployment during a deep and serious recession. Expansionary monetary policy causes an increase in bond prices and a reduction in interest rates. That increases the money supply, lowers interest rates, and increases demand.