AP MacroeconomicsMoney & Monetary Policy
Expansionary Monetary Policy
Expansionary monetary policy increases the money supply to lower interest rates and stimulate aggregate demand.
The central bank buys bonds, lowers the discount rate, or cuts the reserve requirement. Lower interest rates boost investment and interest-sensitive consumption, shifting aggregate demand right. It is used to fight recession and unemployment.
Formula / Example
Buy bonds → ↑ money supply → ↓ interest rate → ↑ investment → ↑ AD.
Interactive graph
Money Market →
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Study module
Monetary Policy →
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