Expansionary Monetary Policy

In the short run, lower real interest rates in the US also tend to reduce the foreign exchange value of the dollar, which lowers the prices of the exports sold abroad and raises the prices of foreign produced goods. Expansionary monetary policy also raises aggregate spending on US produced goods and services by improving the balance of trade. A monetary policy that constantly attempts to keep short-term real rates low can lead to high inflation and higher nominal interest rates to protect the purchasing power of the funds due to them. This is the reason that economic activity can not keep expanding beyond its potential level. Initially, the low real interest rates will cause business and households to increase their borrowing demands, and