Which monetary policy is designed to increase the money supply to stimulate growth?

Which monetary policy is designed to increase the money supply to stimulate growth?

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

Answer: (B)

Easy-money policy, also known as expansionary monetary policy, is designed to increase the money supply to stimulate growth. When the central bank makes money more available—by lowering interest rates, buying government securities, or reducing reserve requirements—borrowing becomes cheaper and more accessible. This tends to raise spending by households and firms, boost investment, and push aggregate demand higher, supporting stronger economic growth in the short run. In contrast, tight-money policy reduces the money supply and raises interest rates, which cools borrowing and slows growth. The general term monetary policy covers both expansionary and contractionary actions, so it’s not specific to increasing money supply. Fiscal policy, involving government spending and taxes, operates through the government budget rather than the money supply.

Easy-money policy, also known as expansionary monetary policy, is designed to increase the money supply to stimulate growth. When the central bank makes money more available—by lowering interest rates, buying government securities, or reducing reserve requirements—borrowing becomes cheaper and more accessible. This tends to raise spending by households and firms, boost investment, and push aggregate demand higher, supporting stronger economic growth in the short run.

In contrast, tight-money policy reduces the money supply and raises interest rates, which cools borrowing and slows growth. The general term monetary policy covers both expansionary and contractionary actions, so it’s not specific to increasing money supply. Fiscal policy, involving government spending and taxes, operates through the government budget rather than the money supply.