when interest rates are lowered the availability of credit is increased this leads to an increase in consumer spending driving economic growth after all the end goal of expansionary policy is to heat up the economy the primary effect or intended effect of expansionary policy is to make people acquire and spend more money 
this effect also translates into business activity expansionary policy can also stimulate business investment by making it cheaper to borrow money for capital expenditures leading to increased job creation and economic growth for this reason it s common for jobs to have more job openings or job creations during expansionary policy since capital is easier to come by because consumers have more money and companies are hiring more expansionary policy results in an increase in demand for goods and services this often leads to more favorable manufacturing information especially for firms that also invest in expansion using low cost of capital this also creates a more balanced system of trades as companies undergoing expansionary policy may be cheaper to export all of this activity is meant to stimulate an economy unfortunately in order to reduce unemployment the primary negative effect of expansionary policy is inflation an increase in the money supply can lead to inflation if it outpaces the growth of the economy this means that prices wages and input costs increase though people have more money or better access to money the prices they pay will be higher examples of expansionary policya major example of expansionary policy is the response following the 2008 financial crisis when central banks around the world lowered interest rates to near zero and conducted major stimulus spending programs in the united states this included the american recovery and reinvestment act and multiple rounds of quantitative easing by the u s federal reserve u s policy makers spent and lent trillions of dollars into the u s economy in order to support domestic aggregate demand and prop up the financial system in a more recent example declining oil prices from 2014 through the second quarter of 2016 caused many economies to slow down canada was hit especially hard in the first half of 2016 with almost one third of its entire economy based in the energy sector this caused bank profits to decline making canadian banks vulnerable to failure to combat these low oil prices canada enacted an expansionary monetary policy by reducing interest rates within the country the expansionary policy was targeted to boost economic growth domestically however the policy also meant a decrease in net interest margins for canadian banks squeezing bank profits expansionary policy during covid 19a more recent and extreme example of expansionary policy occurred during the covid 19 pandemic in response to temporary business closures and an immediately halted economy the federal government lowered interest rates from 1 5 1 75 to 0 0 25 around march 2020 1 in seemingly overnight governments tried to make it as easy as possible for consumers and businesses to receive low cost debt in an example of fiscal policy the irs issued three economic impact payments during the pandemic taxpayers assuming they did not exceed income thresholds could receive three different payments 1 200 in april 2020 600 in december 2020 and 1 400 in march 2021 there were also additional child tax credit opportunities 2one last example of expansionary policy during covid 19 was the federal reserve s open market operations the treasury raised trillions of dollars by issuing treasury bills and the treasury also held a historically high operating cash amount of 1 6 trillion on hand 3 it also increased its purchase of treasury securities and other debt instruments to inject capital into the market it was not until 2022 that the federal reserve began easing these purchases 4