Question

What is the goal of expansionary monetary policy, and how does it work in the short run?

Answer 1

Goal of expansionary monetary policy is to increase the output level to full employment level.
It works by increasing the money supply through
a) decrease in bank rate or
b) decrease in reserve ratio or
c) purchase of governmetn securities

This leads to higher money supply resulting in lower interest rate.
The lower interest rate leads to higheer investment, thus shifting out the AD curve.
Given constant AS curve, shift out of AD curve leads to increase in output.