What is the immediate effect of expansionary monetary policy on interest rates?

Expansionary monetary policy typically involves actions taken by a central bank, such as lowering interest rates or increasing the money supply, to stimulate economic activity. The immediate effect of this policy is a decrease in interest rates.

When a central bank implements expansionary monetary policy, it generally does so by lowering the benchmark interest rate. This makes borrowing cheaper for consumers and businesses, encouraging spending and investment. Additionally, increasing the money supply means that there is more money available in the economy, which tends to drive down the cost of borrowing—the interest rate.

Lower interest rates are intended to promote economic growth by making loans more accessible and affordable, thereby increasing consumer demand and business investments. This decrease is typically seen as a direct response to the central bank's actions aimed at combating economic slowdowns or recessions.

Other options, such as an increase in interest rates or them remaining stable, do not align with the principles of expansionary monetary policy. Fluctuating interest rates is also unlikely as a direct immediate effect, since the goal of the policy is to create a more predictable borrowing environment to boost economic confidence.