Expansionary Policy

Dictionary Says

Definition of 'Expansionary Policy'

A macroeconomic policy that seeks to expand the money supply to encourage economic growth or combat inflation (price increases). One form of expansionary policy is fiscal policy, which comes in the form of tax cuts, rebates and increased government spending. Expansionary policies can also come from central banks, which focus on increasing the money supply in the economy.
Investopedia Says

Investopedia explains 'Expansionary Policy'

The U.S. Federal Reserve employs expansionary policies whenever it lowers the benchmark fed funds rate or discount rate or when it buys Treasury bonds on the open market, thereby injecting capital directly into the economy.  

Expansionary Policy is a useful tool for managing low-growth periods in the business cycle, but it also comes with risks. First and foremost, economists must know when to expand the money supply to avoid causing side effects like high inflation. There is also a time lag between when a policy move is made (whether expansionary or contractionary) and when it works its way through the economy. This makes up-to-the-minute analysis nearly impossible, even for the most seasoned economists. And finally, prudent central bankers and legislators must know when to halt money supply growth or even reverse course and switch to a contractionary policy.

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Money Supply

    The entire stock ...
  2. M1

    A category of ...
  3. M2

    A category ...
  4. M0

    A measure of the ...
  5. Discount Window

    Credit ...
  6. Federal Reserve Board - FRB

    The governing ...
  7. Stabilization Policy

    A macroeconomic ...
  8. Contractionary Policy

    A type of policy ...
  9. Agency Bond

    A bond issued by ...
  10. Convertible Arbitrage

    An investing ...

Articles Of Interest

  1. What Are Central Banks?

    They print money, they control inflation, and much, much more. All you need to know about central banks is here.
  2. Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  3. Cost-Push Inflation Versus Demand-Pull Inflation

    Gain a deeper understanding of aggregate supply and demand, forces which raise the price of goods and services.
  4. What Is the Quantity Theory of Money?

    Take a look at the tenets, assumptions and challenges of monetarism's principal theory.
  5. The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  6. Rate Cuts Don't Guarantee Great Returns

    Pundits often advise buying after the Fed cuts interest rates, but this advice could cost you.
  7. This Is Your Brain On Stocks

    Find out how the human mind can hurt investors' portfolios.
  8. Should You Invest Your Entire Portfolio In Stocks?

    It is true that stocks outperform bonds and cash in the long run, but that statistic doesn't tell the whole story.
  9. 5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!
  10. 5 Popular Portfolio Types

    Learning how to build these portfolios will increase your investing confidence and give you financial control.

comments powered by Disqus
Recommended
Loading, please wait...
Trading Center