What Does Expansionary Policy Mean?

Expansionary policy seeks to stimulate an economy by boosting demand through monetary and fiscal stimulus. Expansionary policy is intended to prevent or moderate economic downturns and recessions.

What is expansionary and contractionary policy?

There are two types of fiscal policy: Contractionary fiscal policy and expansionary fiscal policy. Contractionary fiscal policy is when the government taxes more than it spends. Expansionary fiscal policy is when the government spends more than it taxes.

What is the effect of an expansionary policy?

Expansionary monetary policy increases the money supply in an economy. The increase in the money supply is mirrored by an equal increase in nominal output, or Gross Domestic Product (GDP). In addition, the increase in the money supply will lead to an increase in consumer spending.