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Accommodative Monetary Policy

Accommodative Monetary Policy is the central bank policy that strives to stimulate economic growth by increasing the supply of money that banks may lend the market. When a central bank eases the money supply it effectively lowers short term rates, decreasing the cost to borrow. The theory is that this stimulates investment and thereby employment and economic growth. Overall Accommodative Monetary Policy is thought to pursue growth at the expense of potential inflationary pressures which tend to accompany high demand and wage growth. Tight Monetary Policy is the reverse of Accommodative, where central banks rein in money supply, increasing the cost to borrow. Tight Policy is thought to decrease inflationary pressures and economic growth.

 

 

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