Which monetary policy strategy of the Federal Reserve is most likely reflected by headlines reporting a reduction in interest rates to stimulate economic growth?

• A. Fiscal policy intervention
• B. Neutral monetary policy
• C. Expansionary monetary policy
• D. Contractionary monetary policy

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the role of the Federal Reserve in monetary policy, which involves managing interest rates and the money supply to influence economic activity.
2. Step 2: Recognize that a reduction in interest rates is a tool used by the Federal Reserve to make borrowing cheaper, encouraging spending and investment.
3. Step 3: Identify that when the Federal Reserve lowers interest rates to stimulate economic growth, it is implementing an expansionary monetary policy.
4. Step 4: Differentiate expansionary monetary policy from contractionary monetary policy, which involves raising interest rates to slow down economic activity and control inflation.
5. Step 5: Note that fiscal policy intervention refers to government spending and taxation decisions, not actions taken by the Federal Reserve, so it is not the correct choice here.