accommodatory monetary policy

Quick Reference

A policy of allowing the supply of money to expand in line with the demand for it. If the demand for money rises because of sustainable real growth in the economy, accommodatory monetary policy is desirable, and failure to expand the money supply obstructs real growth. If, however, the cause of rising demand for money is a temporary, unsustainable surge in real activity, inflation in prices and wages, or both, accommodatory monetary policy allows these excesses to continue too long. When obvious excess demand or high inflation eventually forces a shift to a more restrictive monetary policy, this will have to be severe and may cause a serious depression.

Subjects: Economics.

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