Expansionary monetary policy increases aggregate demand.

• A. Contractionary monetary policy
• B. Expansionary monetary policy
• C. Fiscal policy
• D. Productivity policy

Answer: (B)

Expansionary monetary policy increases aggregate demand by injecting money into the economy and lowering interest rates. When the money supply rises and borrowing becomes cheaper, households are more likely to spend and firms more likely to invest, which boosts consumption and investment—the two main components of aggregate demand. This shift raises overall demand in the economy. The other options don’t fit as well: contractionary monetary policy would curb demand by raising interest rates; fiscal policy is a government spending/tax tool rather than a monetary one and can influence AD but through different channels; productivity policy affects long-run supply, not current demand.