Question

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

Select the correct answer using the codes given below:

• A. 1 and 2 only
• B. 1 and 3 only
• C. 1 and 4 only
• D. 1, 2, 3 and 4

Answer 1

The correct option is C 1 and 4 only

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.
  • An increase in the aggregate demand and economic growth in the economy.