When is expansionary policy principally used?

Expansionary policy is primarily used to stimulate economic growth, particularly during times of recession or economic slowdown. This policy involves actions such as increasing government spending, lowering taxes, or expanding the money supply aimed at boosting aggregate demand. When the economy is underperforming, expansionary measures are implemented to encourage investment, consumer spending, and overall economic activity, helping to increase employment levels and foster a more robust economic environment.

In contexts such as a recession, where consumer confidence may be low, businesses may be hesitant to invest, and consumers may cut back on spending. Expansionary policies are intended to reverse this trend by creating a more favorable environment for both consumers and businesses, facilitating growth and recovery in the economy.

While expansionary policy can influence other factors, such as deflation or inflation, its principal goal is to enhance economic growth, making the chosen answer align with the core objectives of expansionary measures in macroeconomic policy.