Final answer:
An expansionary monetary policy is necessary when the economy is slowing down or in a recession, indicated by a decreased money supply, which can result in higher interest rates that reduce investment and consumption.
Step-by-step explanation:
An expansionary monetary policy is typically needed when the economy is showing signs of a slowdown or entering a recession, not when it's growing rapidly. The correct scenario that indicates a need for an expansionary monetary policy would be (a) The money supply has decreased recently. This is because a decreased money supply can lead to higher interest rates, which may reduce investment and consumption, potentially leading to an economic slowdown or exacerbating a recession.
During expansionary monetary policy, the central bank increases the supply of money and loanable funds, which results in lowering the interest rate. This stimulates borrowing for investment and consumption, thereby shifting the aggregate demand curve to the right. The ultimate effects are a short-run increase in the real GDP and a higher price level. The expansionary policy is appropriate in the face of economic contractions or recessions because it aims to boost economic activity and counteract the effects of a recession.