To increase the rate of economic growth, which monetary policy action would be used?

• A. Increasing taxes
• B. Increasing the money supply
• C. Reducing government spending
• D. Raising reserve requirements

Answer: (B)

Expanding the money supply is an expansionary monetary policy move. When the central bank increases the money supply, banks have more reserves and can lend more easily. Lower interest rates from easier borrowing encourage businesses to invest and households to spend, which raises aggregate demand and supports faster economic growth in the short run.

The other options aren’t the right monetary tools for boosting growth: increasing taxes and reducing government spending are fiscal policy measures that typically dampen demand and slow growth. Raising reserve requirements tightens monetary policy by reducing banks’ capacity to lend, which raises interest rates and also slows growth rather than speeds it up.