Which monetary policy aims to accelerate the growth of the money supply to stimulate the economy?

• A. Easy-money policy
• B. Tight-money policy
• C. Monetary policy
• D. Fiscal policy

Answer: (A)

Expansionary monetary policy is the idea behind an easy-money approach. When the central bank wants to stimulate the economy, it encourages faster growth in the money supply. It does this by buying government securities (open-market operations), lowering the reserve requirements for banks, and reducing the policy interest rate. These moves put more money into the banking system, push down interest rates, and make borrowing cheaper. With cheaper credit, households and businesses spend and invest more, boosting aggregate demand and supporting higher output and employment.

This contrasts with tight-money policy, which slows money growth to raise rates and cool spending and investment, typically to curb inflation. Fiscal policy is a separate lever controlled by the government, involving spending and taxation rather than money supply.