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11+ Expansionary Policy Templates in PDF | DOC

Expansionary policy refers to a form of macroeconomic policy designed to foster economic development. This policy may comprise of either monetary or fiscal policy or a mix of both. It is part of Keynesian economics general policy strategy, to be used during global slowdowns and recessions to reduce the risk of economic cycles.

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11+ Expansionary Policy Templates in PDF | DOC

1. Expansionary Monetary Policy

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2. Monetary Policy Too Expansionary

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3. Expansionary Fiscal Policy

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4. Expansionary monetary policy Example

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5. Expansionary Fiscal and Monetary Policy

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6. Expansionary monetary policy drives growth

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7. Basic Expansionary Fiscal Policy

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8. Expansionary and Monetary Fiscal Policy

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9. Sample Expansionary Monetary Policy

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10. Appreciation Expansionary Policy

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11. Monetary turnaround and more expansionary fiscal policy

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12. Monetary Policy to be as Expansionary as Possible Policy

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How Does Expansionary Policy Work?

The fundamental goal of expansionary policy is to raise aggregate demand to compensate for private demand shortfalls. The policy is focused on Keynesian economics theories, especially the idea that a deficit in aggregate demand is the main cause of recessions. This policy is designed to enhance business investment and buyer spending by either direct government deficit spending or increased lending to businesses and consumers injecting money into the economy. From a fiscal policy viewpoint, the government uses budgeting techniques to implement expansionary policies that provide more money to people. Raising spending and reducing taxes to create budget deficits implies that the government is pumping more money into the economy than it takes out. The expansionary fiscal policy entails tax reductions, grants, rebates and increased government spending on programs such as upgrades to roads.

Expansionary monetary policy operates by increasing the money supply more rapidly than average, or by reducing short-term interest rates. The policy is implemented by central banks and is achieved with the help of open market operations, reserve requirements and interest rate-setting.

Expansionary Policy Vs Contractionary Policy

The expansionary policy falls under the category of finance policies.  The opposite of this policy is the contractionary policy. By the term itself, expansionary policy is implemented in the economy to increase the supply of money in that economy. On the other hand, the contractionary policy is implemented to decrease the supply of money in that economy. The central bank of a country can make use of wither depending on the economic conditions of that period. The question is how it is determined which policy to use.

The true trend rate, also known as just the trend rate, is an economy’s long-term sustainable real growth pace. That is the pace without inflationary pressures that an economy can achieve. This trend is not measured explicitly and should be calculated. The trend often varies with increasing economic conditions. The neutral interest rate is the rate of growth at which the rate of growth of the money supply remains constant. This means that the actual GDP is rising at the pace of average, and inflation remains steady.

Neutral interest rate = Real trend rate + Inflation target

The discount rate (policy rate) can be related to the neutral interest rate. If the rate of discount is more than the neutral rate of interest, it can be said that the monetary policy is contractionary and vice versa. This implies that the central bank is trying to diminish the money supply in the economy. Monetary policy adjustment usually represents the root of inflation. If inflation is above goal due to an increase in aggregate demand, contractionary policies are acceptable. If not, expansionary policies will be implemented.

Risks of Expansionary Policies

  1. Measuring when to participate in expansionary strategy, how much to do, and when to avoid needs sophisticated analysis and entails significant uncertainties. Too much growth may have serious side effects such as an overheated economy, or high inflation. There is also a delay from when a government change is being taken and when the market is working its way.
  2. The delay between the change and the market working its way makes evaluating up-to-the-minute almost difficult even for the most experienced economists. Cautious central bankers and lawmakers need to know when to stop the growth of money supply, or even reverse course, and turn to a contractionary approach that would involve taking the opposite actions of expansionary policy, such as interest rate hikes.
  3. The expansionary fiscal and monetary policy risks generating microeconomic inequalities through the economy even under ideal conditions. Basic economic designs frequently depict the impacts of expansionary policy as impartial to the economic structure, as if the money injected into the economy were distributed across the economy uniformly and instantly.
  4. Under practical terms, all monetary and fiscal strategies work by providing new money to particular individuals, companies, and sectors who then invest and distribute fresh money to the overall economy. This implies that expansionary strategy often requires an efficient redistribution of buying wealth and power from the earlier beneficiaries to the later recipients of the new money, rather than systematically raising aggregate demand.
  5. The expansionary strategy, like any public policy, is highly vulnerable to knowledge and opportunity issues. Distributing the capital injected into the economy by expansionary policy naturally will entail political considerations. Issues such as lease-seeking and issues with principal officers quickly emerge if large sums of public money become up for grabs. And by extension, the expansionary strategy includes the allocation of large sums of public money, whether fiscal or monetary.

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