Abiblo Economics – Accommodatory Monetary Policy
Accommodatory Monetary Policy allows the supply of the money to expand in line with the demand for it.
When the demand for money increases due to sustainable real growth in the economy, accommodatory monetary policy is desirable. In this case, any failure to expand the supply of money may lead to temporary unsustainable surge in real activity, inflation in wages and prices. The acommodatory monetary policy permits these excesses to continue too long.
In scenario where there is obvious excess of demand or high inflation, this will lead to a shift for a more restrictive monetary policy. This may lead to a serious cases of recession.