Economics Monetary Policy Questions
Monetary policy impacts economic growth by influencing the availability and cost of credit in the economy. When the central bank implements expansionary monetary policy, such as lowering interest rates or increasing the money supply, it stimulates borrowing and spending, leading to increased investment and consumption. This, in turn, boosts aggregate demand and economic growth. Conversely, contractionary monetary policy, such as raising interest rates or reducing the money supply, restricts borrowing and spending, which can slow down economic growth. Overall, the effectiveness of monetary policy in impacting economic growth depends on various factors, including the state of the economy, inflation levels, and the transmission mechanism of monetary policy.