What is the main impact of expansionary policy on output and price?

Expansionary policy is designed to stimulate economic activity, particularly during times of recession or low economic growth. The primary mechanism of expansionary policy is to increase the money supply, which can be achieved through various means, such as lowering interest rates or purchasing government securities.

When the money supply increases, it generally lowers interest rates, making borrowing cheaper for consumers and businesses. This, in turn, encourages spending and investment, which leads to an overall increase in output, or Gross Domestic Product (GDP). As businesses respond to higher demand by producing more goods and services, output rises.

Additionally, as the economy grows due to increased spending and investment, prices may also rise due to higher demand for goods and services. However, the main focus of expansionary policy is to increase output and stimulate the economy by expanding the money supply, making choice C the most accurate representation of the primary impact of such policies.