Which of the following is a primary goal when a government implements expansionary monetary policy?

• A. To reduce the inflation rate below zero
• B. To raise interest rates to control excessive spending
• C. To increase aggregate demand and stimulate economic growth
• D. To decrease the money supply in the economy

Answer: (C)

Verified step by step guidance

1. Step 1: Understand what expansionary monetary policy means. It is a policy used by the government or central bank to increase the money supply and lower interest rates to stimulate economic activity.
2. Step 2: Recall the primary goals of expansionary monetary policy, which typically include increasing aggregate demand, encouraging investment and consumption, and promoting economic growth, especially during periods of recession or slow growth.
3. Step 3: Analyze each option in the problem: reducing inflation below zero would imply deflation, which is generally not a goal; raising interest rates is contractionary, not expansionary; decreasing the money supply is also contractionary.
4. Step 4: Recognize that the correct goal of expansionary monetary policy is to increase aggregate demand and stimulate economic growth by making borrowing cheaper and encouraging spending.
5. Step 5: Conclude that the option 'To increase aggregate demand and stimulate economic growth' aligns with the fundamental purpose of expansionary monetary policy.