Question

When the Central Bank ________, they cause the money supply to increase, which increases aggregate demand....

When the Central Bank ________, they cause the money supply to increase, which increases aggregate demand.

A) follows quantitive easing policy

B) follows an expansionary monetary policy

C) follows a contractionary monetary policy

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Answer #1

Contractionary monetary policy is aimed at decreasing aggregate demand to control inflation.

Expansionary monetary policies comprise measures to increase aggregate demand. This is typically done by managing money supply and interest rates.

Quantitative easing is a form of expansionary monetary policy in which the central bank purchases securities by means of open market operations so as to increase money supply thereby enhancing investment and lending. This in turn increases aggregate demand.

Ans: A) follows quantitative easing policy

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