In macroeconomics, what is the primary purpose of expansionary policy?

• A. To stimulate economic growth during periods of recession or slow growth
• B. To decrease government spending and balance the budget
• C. To increase interest rates and slow down borrowing
• D. To reduce inflation by decreasing aggregate demand

Answer: (A)

Verified step by step guidance

1. Step 1: Understand that expansionary policy is a type of macroeconomic policy used by governments or central banks.
2. Step 2: Recognize that the main goal of expansionary policy is to increase economic activity, especially when the economy is experiencing a recession or slow growth.
3. Step 3: Know that expansionary policy typically involves increasing government spending, cutting taxes, or lowering interest rates to encourage borrowing and investment.
4. Step 4: Contrast expansionary policy with contractionary policy, which aims to reduce inflation by decreasing aggregate demand, often through higher interest rates or reduced government spending.
5. Step 5: Conclude that the primary purpose of expansionary policy is to stimulate economic growth during periods of recession or slow growth, rather than to balance the budget or reduce inflation.