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Which kind of monetary policy would you expect in response to recession: expansionary or contractionary? Why?

Sagot :

The kind of monetary policy I would you expect in response to recession would be expansionary policy.

During the recession, monetary policy attempts to increase aggregate demand by increasing the growth of the money supply in the economy. As,  after increasing the money supply, the interest rates will fall. Thus, lower interest rates increases aggregate demand, as it causes higher investment spending.

In response to recession, the kind of monetary policy that I would you expect would be expansionary policy because this policy can help the economy return to potential GDP. This policy seeks to restore an economy by boosting demand through monetary and fiscal stimulus.

Hence, expansionary policy is intended to prevent or moderate  recessions in the economy.

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