Which best describes an Easy Money policy?

• A. A policy that tightens credit and raises rates.
• B. A policy that increases money supply usually by lowering interest rates.
• C. The rate on long-term bonds.
• D. A structural change in tax policy.

Answer: (B)

Easy money policy is an expansionary monetary policy used to stimulate the economy by increasing the money supply and lowering interest rates. By making borrowing cheaper, it encourages households and businesses to borrow and spend, which boosts demand, output, and employment. Central banks implement it by lowering the policy rate, buying government securities, or relaxing reserve requirements, all aimed at easing credit conditions. The other options describe different things: tightening credit and raising rates is the opposite of easy money, not the policy in question; the rate on long-term bonds is simply a market rate, not a policy by itself; and a structural change in tax policy is fiscal policy, not monetary policy. The description that best matches an Easy Money policy is increasing the money supply usually by lowering interest rates.