12. Expansionary monetary policy will tend to have what effects?

A. decrease in money supply, lower Interest Rates, and decrease Aggregate Demand

B. increase in money supply, higher Interest Rates, and decrease Aggregate Demand

C. decrease in money supply, higher Interest Rates, and decrease Aggregate Demand

D. Increase in money supply, lower Interest Rates, and increase Aggregate Demand

In this instance, the correct answer would be option D. or Increase in money supply, lower Interest Rates, and increase Aggregate Demand.

Explanation:

An expansionary monetary policy commonly signifies an increase in overall money supply in the economy by the central bank. An increase in money supply in the economy induces a decrease in the interest rate or the cost of financial borrowing in the economy. Now, a reduction in the interest rate or cost of financial borrowing increases the money demand among investors and businesses thereby expanding the aggregate investment level in the economy which is an important component or determinant of the Aggregate Demand in the economy. Due to an increase in the aggregate private investment level in the economy, the Aggregate Demand increases which can eventually lead to a rise in the GDP or overall output level in the economy.