Explain the effect on GDP of an expansionary monetary policy (10)

Monetary policy is the use of the interest rates to influence aggregate demand and therefore influence GDP. Interest rates are the rates at which borrowers are charged or lenders paid for their loan, they are set by the Central Bank.
An expansionary monetary policy would mean that the central bank has made the decision to decrease interest rates in an attempt to stimulate the economy. By decreasing the borrowing rate, consumers and firms would be able to borrow at a lower price and there would be an increase in consumption and investment. This leads to an increase in GDP as GDP=C+I+G+X-M. There is also a disincentive for consumers to save as the opportunity cost of saving has now increased because they receive a smaller return for keeping their money in their savings account.
Another effect of the decrease in interest rates is that it now becomes less attractive for foreign investors to keep their money in the country as the return is lower. So they will choose to sell their currency leading to an increase in supply of the domestic currency. This will lead to a decrease in the price of the currency compared to other countries currencies which will make domestic exports more internationally competitive. This will help to increase GDP as well as improving the trade balance.