What happens during an expansionary monetary policy stance?

During an expansionary monetary policy stance, the main goal is to stimulate economic activity by making borrowing cheaper and more accessible. This is typically achieved through actions taken by the central bank, such as lowering the cash rate, which is the interest rate at which banks lend to each other. When the cash rate decreases, it encourages banks to lower their own lending rates, thereby reducing the cost of loans for consumers and businesses. As a result, this leads to increased borrowing and spending, which can help boost economic growth and reduce unemployment.

The other options do not accurately describe the outcomes of expansionary monetary policy. Interest rates in the short-term money market do not increase; instead, they tend to decrease as a result of the policy. The money supply does not decrease; it actually increases when the central bank takes measures to inject liquidity into the economy. Lastly, rather than selling government securities, the central bank usually purchases them during expansionary policy to increase the amount of money in circulation, which further contributes to lowering interest rates and stimulating economic activity.