Question

Q. Which of the following might be an impact of an expansionary monetary policy?

• A. Increase in Inflation.
• B. Decrease in Inflation.
• C. Increase in the Cost of Credit.
• D. Decrease in Liquidity.

Answer 1

The correct option is A Increase in Inflation.

Explanation:

• The expansionary monetary policy implies the expansion of the money supply in the market. It is carried out through open market operations, reducing the interest rates and reducing the reserve requirements.
• It is often used to stimulate growth.
• The impacts of an Expansionary Monetary Policy are:
  • Increase in Inflation as more money would be chasing the goods produced.
  • Decrease in the Cost of credit as the RBI makes them available to the banks at lesser rates.
  • An increase in Liquidity improves the money supply in the market.