Accommodative monetary policy

Subject – Economy

Context – An accommodative stance on public spending in budget holds key to economic revival

Concept –

Accommodative monetary policy, 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 (as measured by GDP).
The policy is implemented to allow the money supply to rise in line with national income and the demand for money.
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 bank

To know about different Monetary Policy Stances, please refer November 2021 DPN.

Accommodative Fiscal policy

Expansionary fiscal policy is when the government increases the money supply in the economy using budgetary instruments to either raise spending or cut taxes—both having more money to invest for customers and companies.
Expansionary fiscal policy includes tax cuts, transfer payments, rebates and increased government spending on projects such as infrastructure improvements.