Skip to main content

Accommodative Monetary Policy

 

Accommodative Monetary Policy


Accommodative Monetary Policy (AMP)

  • AMP, also known as loose credit or easy monetary policy, occurs when a central bank attempts to expand the overall money supply to boost the economy when growth is slowing.
  • The policy is implemented to allow the money supply to rise in line with national income and the demand for money.

How it Works ?

  • When the economy slows down, the central bank can implement an accommodative monetary policy to stimulate the economy. 
  • It does this by running a succession of decreases in the bank rate, making the cost of borrowing cheaper. 
  • The central bank can also allow the money supply to increase or increase the money supply via quantitative easing (QE). 
  • Accommodative monetary policy is triggered to encourage more spending from consumers and businesses by making money less expensive to borrow through the lowering of short-term interest rates.
  • When money is easily accessible through banks, the money supply in the economy increases. This leads to increased spending. When businesses can easily borrow money, they have more funds to expand operations and hire more workers, which means that the unemployment rate will decrease.
  • On the other hand, people and businesses tend to save less when the economy is stimulated due to the low savings interest rates offered by banks. Instead, any additional funds are invested in the stock market, pushing up stock prices.

Criticism 

  • While accommodative monetary policy expands economic growth mid-term, there may be negative repercussions in the long-term. 
  • If the money supply is loosened for too long, there will be too much money chasing too few goods and services, leading to inflation. This leads to increased costs for some goods, such as housing. 
  • To avoid inflation, most central banks alternate between the accommodative monetary policy and the tight monetary policy in varying degrees to encourage growth while keeping inflation under control. 
  • A tight monetary policy is implemented to contract economic growth. Converse to accommodative monetary policy, a tight monetary policy involves increasing interest rates to constrain borrowing and to stimulate savings. As well, the increased money supply can depreciate the currency.

Labels:

Comments

Post a Comment

Popular posts from this blog

Major Literary Works & Authors in Gupta Period

  Major Literary Works & Authors in Gupta Period The Gupta period was known as the Golden period of India in cultural development. It is considered as the one of the supreme and most outstanding times. Gupta Kings patronized the Sanskrit literature. They generously helped Sanskrit scholars and poets. Eventually Sanskrit language became the language of cultured and educated people. Kalidasa He was a Classical Sanskrit writer, extensively considered as the greatest poet and dramatist of Gupta Period. The six major works of Kalidasa are Abhijnanashakuntala Vikramorvashi Malavikagnimitra The epic poems Raghuvamsha Kumarasambhava Meghaduta Vishakhadatta The famous plays of Vishakhadatta are Mudrarakṣhasa Mudrarakshasha means “Ring of the Demon” and it recites the ascent of Chandragupta Maurya to throne. Shudraka He is a king as well as poet The famous three Sanskrit plays contributed by him are Mrichchhakatika (The Little Clay Cart) Vinavasavadatta A bhana (short one-act monologue) ...
Post a Comment
Read more

15 July – Current Affairs

15 July – Current Affairs National Dairy Development Board (NDDB) : Ø The Ministry of Animal Husbandry, Dairying and Fisheries recently told the Parliament that it has advised NDDB to “extend the provisions of the RTI Act, 2005 to its subsidiary companies including NDDB Dairy Services.” Ø Type: An Institution of National Importance set up by an Act of Parliament of India. Ø History: It was founded by Dr. Verghese Kurien in 1965. Ø Headquarters: Anand, Gujarat. Ø NDDB's subsidiaries include: IDMC Limited-Anand, Mother Dairy, Delhi, NDDB Dairy Services, Delhi and Indian Immunologicals Ltd, Hyderabad. World Youth Skill Day : Ø The fourth anniversary of the Skill India Mission is being observed on July 15, 2019 o the occassion of World Youth Skills Day. Ø The United Nations, at its General Assembly in November 2014, declared 15 July as World Youth Skills Day.  Ø Traditionally organized by the Permanent Missions of Portugal and Sri Lanka, together w...
1 comment
Read more

4th July- Current Affairs

4th July- Current Affairs MSP of Kharif Crops : Ø The Cabinet Committee on Economic Affairs (CCEA) has approved the increase in the Minimum Support Prices (MSP) for all kharif crops for 2019-20 Season. Ø The MSP of paddy has been increased by 65 rupees per quintal, Jowar by 120 rupees, Ragi by 253 rupees, Tur by 125 rupees, Moong by 75 rupees, Urad pulses by 100 rupees, Soyabean by 311 rupees, sunflower by 262 rupees and sesamum by 236 rupees. Ø The highest percentage return to farmers over their cost of production is for Bajra (85%) followed by urad (64%) and tur (60%).  Ø The increase in MSP for Kharif Crops for 2019-20 season is in line with the principle of fixing the MSPs at a level of atleast 1.5 times of the all India weighted average Cost of production, which was announced in the last budget 2018-19.  Kulhudhuffushi : Ø The MoU will pave way for ferry services between Maldives and Kerala by Connecting  Kochi with Male &...
Post a Comment
Read more