Discuss the likely effects of expansionary monetary policy.

Expansionary monetary policy is the use of a central bank's money supply and interest rate manipulation to stimulate aggregate demand and aggregate supply. This is done through raising the money supply, likely through quantitative easing, and lowering interest rates to stimulate consumption and investment.
Firstly, lowering interest rates can have several effects. Firstly it will lower the incentive for consumers to save, therefore encouraging them to spend thus stimulating consumption. This will have a direct effect on consumption which will increase aggregate demand as it is is a direct constituent. This can then lead to greater revenue and profits for firms. As a result of the higher profits this can result in greater retained earnings to be invested back into the firm, an increase in dynamic efficiency as a result. This will then further fuel investment to increase aggregate demand further. The result being greater output and higher inflationary pressure as shown by the diagram.