Expansionary monetary policy is when a centralbank uses its tools to stimulate the economy. That increases the money supply, lowers interest rates, and increases aggregate demand. That boosts growth as measured by Gross Domestic Product (GOP). It usually diminishes the value of the currency, thereby decreasing the exchange, rate.
To increase the money supply, it can do a combination of three things:
• Purchase securities on the open market, known as Open
Market Operations
• Lower the Discount Rate
• Lower Reserve Requirements