Stimulating monetary policy consists in the following: central bank taking measures to increase the supply of money. Opportunities of commercial banks are increasing → banks are issuing more loans → money supply is increasing multiplicatively → the interest rate (loan price) is falling → companies are happy to take cheaper loans → investment costs are increasing → total demand is increasing → production is increasing multiplicatively.
In the short term, monetary policy can affect economic indicators, the rate of unemployment, and the rate of output.
