Which type of monetary policy typically lowers interest rates to stimulate the economy?

Expansionary policy is the type of monetary policy that aims to stimulate economic growth by lowering interest rates. When a central bank implements expansionary policy, it increases the money supply and reduces interest rates, making borrowing cheaper for consumers and businesses. This encourages spending and investment, which can lead to higher demand for goods and services, ultimately helping to boost economic activity.

By lowering interest rates, expansionary policy helps to combat unemployment and can be particularly useful during economic downturns or recessions, when businesses and consumers may be hesitant to spend. This action aims to increase liquidity in the economy, encouraging growth through easier access to credit and loans.

Tight money policies, in contrast, are focused on reducing the money supply and raising interest rates in order to combat inflation, which slows down economic growth. Contractionary and restrictive policies also aim to limit the money supply and increase interest rates, serving similar functions as tight money policies by aiming to cool down an overheated economy. Therefore, the focus of expansionary policy on lowering interest rates to stimulate the economy clearly distinguishes it from these other approaches.