Accommodating policy

24-Aug-2014 16:47 by 5 Comments

Accommodating policy - an dating site

Nowadays this type of monetary policy is no longer used by any country.

This official price could be enforced by law, even if it varied from the market price.

Interest rates, while now thought of as part of monetary authority, were not generally coordinated with the other forms of monetary policy during this time.

Monetary policy was seen as an executive decision, and was generally in the hands of the authority with seigniorage, or the power to coin.

Also, this increases the aggregate demand (the overall demand for all goods and services in an economy), which boosts growth as measured by gross domestic product (GDP).

Expansionary monetary policy usually diminishes the value of the currency, thereby decreasing the exchange rate.

The opposite of expansionary monetary policy is contractionary monetary policy, which slows the rate of growth in the money supply or even shrinks it. Contractionary monetary policy can lead to increased unemployment and depressed borrowing and spending by consumers and businesses, which can eventually result in an economic recession; it should hence be well managed and conducted with care.

For many centuries there were only two forms of monetary policy: (i) Decisions about coinage; (ii) Decisions to print paper money to create credit.

The most commonly used tool by which the central bank can affect the monetary base is by open market operations.

This entails managing the quantity of money in circulation through the buying and selling of various financial instruments, such as treasury bills, company bonds, or foreign currencies, in exchange for money on deposit at the central bank.

It was also increasingly understood that interest rates had an effect on the entire economy, in no small part because of the marginal revolution in economics, which demonstrated how people would change a decision based on a change in the economic trade-offs.

Monetarist economists long contended that the money-supply growth could affect the macroeconomy. Federal Reserve Chairman Paul Volcker tried this policy, starting in October 1979, it was found to be impractical, because of the highly unstable relationship between monetary aggregates and other macroeconomic variables.

An expansionary policy increases the total supply of money in the economy more rapidly than usual.