Loose monetary policy is characterized by what conditions?

Loose monetary policy is characterized by lower interest rates and reduced reserve requirements. This approach is employed by central banks to stimulate economic growth, particularly during periods of economic downturn or recession. By lowering interest rates, borrowing becomes cheaper, encouraging both consumers and businesses to take loans for spending and investment. Additionally, reduced reserve requirements for banks mean that they can lend out a greater portion of their deposits, thus increasing the money supply in the economy.

These conditions are intended to boost economic activity by promoting spending and investment, which can lead to increased employment and income levels. In contrast, higher interest rates and increased reserve requirements would tighten the money supply, which is typically used in a restrictive monetary policy to combat inflation. Higher taxes and increased tax rates would impact fiscal policy rather than monetary policy. Therefore, the conditions outlined in the correct answer align perfectly with the objectives of loose monetary policy, focusing on stimulating growth by making credit more accessible and plentiful.