Which of the following is an example of expansionary policy?

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

Answer: (D)

Expanding demand in the economy is the goal of expansionary policy. When policy is expansionary, it aims to boost spending and investment to lift output and reduce unemployment. Expansionary monetary policy does this directly by lowering interest rates and increasing the money supply, which makes borrowing cheaper and encourages households and firms to spend more. This pushes aggregate demand to the right, helping the economy recover from a downturn.

Among the options, expansionary monetary policy is the clearest example of this approach because it explicitly intends to stimulate demand. The other choices either aim to slow the economy (contractionary monetary policy), focus on longer-run improvements in efficiency (productivity policy), or could be either expansionary or contractionary but aren’t specified as expansionary (fiscal policy). So the best match is expansionary monetary policy.