Expansionary Policy

You've been on a diet for a while. But one day, you give up...and immediately eat an entire cookie cake. One form of expansionary policy.

Another connotation relates to government economic policy. The goal of this kind of expansionary policy is to drive economic growth. The government puts programs in effect meant to expand the economy. Expansionary policies.

In terms of monetary policy (those programs controlled by the central bank), these steps could include things like lowering interest rates and increasing the money supply. Fiscal policy can also get involved...policies controlled (in the U.S., anyway) by Congress. These moves can include ramping up government spending or cutting taxes.

The opposite of an expansionary policy would be a contractionary policy. The goal of a contractionary policy isn't to contract the economy, per se, though that can often come about as a result. The government will put contractionary policies into effect when they think inflation risks have become prominent. (One of the risks of an expansionary policy, by the way, is inducing an increase in the risk of inflation.)

So we tread carefully in turning the magic dials.