Accommodating monetary policy definition

Accommodative monetary policy means a policy of allowing the money supply to rise in line with national income and the demand for money.

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Monetary economics provides insight into how to craft an optimal monetary policy.

Since the 1970s, monetary policy has generally been formed separately from fiscal policy, which refers to taxation, government spending, and associated borrowing.

Also, this increases the aggregate demand (the overall demand for all goods and services in an economy), which boosts growth as measured by gross domestic product (GDP).

Expansionary monetary policy usually diminishes the value of the currency, thereby decreasing the exchange rate.

However, if cheap money remains in the economy for too long, it can lead to a situation in which there is a glut of currency or too many dollars chasing too few goods and services leading to inflation.

For this reason, most central banks alternate between policies of cheap money and tight money in varying degrees to encourage growth while keeping inflation under control.

Accommodative monetary policy may also be known as ‘easy monetary policy’ / loose monetary policy.

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Monetary policy is the process by which the monetary authority of a country, like the central bank or currency board, controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

Further goals of a monetary policy are usually to contribute to economic growth and stability, to lower unemployment, and to maintain predictable exchange rates with other currencies.

Monetary policy is referred to as either being expansionary or contractionary.