If the Fed is able to maintain an expansionary monetary policy for a long period of time,then ________.
A) banks make fewer loans
B) bank deposits increase
C) the real interest rate increases
D) the M2 measure of money decreases

Question

Quizplus · Accepted Answer

Under an expansionary monetary policy, the Fed increases the money supply, which leads to lower interest rates, making bank loans cheaper, and encourages households and businesses to borrow money, resulting in an increase in bank deposits. Lower interest rates, in turn, stimulate investments, consumption, and economic growth. Therefore, maintaining an expansionary monetary policy for a long period of time would result in an increase in bank deposits.

If the Fed Is Able to Maintain an Expansionary Monetary