What is known as expansionary policy?

Expansionary policy refers to measures enacted by a government or central bank aimed at stimulating economic growth. Specifically, this approach typically involves injecting money into the economy to encourage spending and investment. When the government increases the money supply, it can lower interest rates, making borrowing cheaper for businesses and consumers. This, in turn, can lead to higher levels of consumption and investment, which are critical for driving economic growth.

While reducing taxes is a separate form of fiscal policy that can also stimulate the economy by increasing disposable income for consumers, it is not synonymous with the broader concept of expansionary policy, which inherently involves injections of cash or liquidity into the economic system. Similarly, increasing interest rates tends to be a contractionary measure, which works against the goal of stimulating economic activity. Withdrawing government funds typically reflects a tightening of fiscal policy rather than expansionary efforts. Therefore, injecting money into the economy is the most direct action associated with expansionary policy.