Core paper. Expansionary policies try to stimulate the economy by stimulating demand through monetary and fiscal stimulus. Expansionary policies aim to prevent or mitigate recessions.
Expansionary monetary policy shifts the LM curve downwards. The money supply increases and interest rates fall. The economy is going down the curve. Falling interest rates increase investment demand and have a multiplier effect on consumption. Fiscal policy is exogenous.
Expansionary monetary policy (quantitative easing) increases the money supply, lowers interest rates, and increases consumption and investment. Used to combat recession.
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