Accommodative Monetary Policy

AAA

DEFINITION of 'Accommodative Monetary Policy'

When a central bank (such as the Federal Reserve) attempts to expand the overall money supply to boost the economy when growth is slowing (as measured by GDP). This is done to encourage more spending from consumers and businesses by making money less expensive to borrow by lowering the interest rate. Furthermore, the Federal Reserve also has the authority to purchase Treasuries on the open market to infuse capital into a weakening economy.

Also known as an "easy monetary policy".

INVESTOPEDIA EXPLAINS 'Accommodative Monetary Policy'

The Federal Reserve adopted an accommodative monetary policy during the late stages of the bear market that began in late 2000. When the economy finally showed signs of a rebound, the Fed eased up on the accommodative measures, eventually moving to a tight monetary policy in 2003.

RELATED TERMS
  1. Policy Mix

    A government's combined use of fiscal policy and monetary policy ...
  2. Central Bank

    The entity responsible for overseeing the monetary system for ...
  3. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  4. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
  5. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with ...
  6. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
RELATED FAQS
  1. What is the criteria for a simple random sample?

    Simple random sampling is the most basic form of sampling and can be a component of more precise, more complex sampling methods. ... Read Full Answer >>
  2. How is money supply used in monetary policy?

    Regulating the money supply is the sole tool of the Federal Reserve's monetary policy. The Federal Reserve can affect the ... Read Full Answer >>
  3. How does a bond's coupon rate affect its price?

    A bond's coupon rate has a large effect on its market price because it dictates the amount of income the bond generates per ... Read Full Answer >>
  4. What are the different types of margin calls?

    Margin is much like buying stocks on loan. An investor borrows funds from a brokerage firm to purchase stocks and pays interest ... Read Full Answer >>
  5. What are the benefits of using ceteris paribus assumptions in economics?

    Most, though not all, economists rely on ceteris paribus conditions to build and test economic models. The reason they do ... Read Full Answer >>
  6. How is the 80-20 rule (Pareto's Principle) used in macroeconomics?

    The 80-20 rule was first used in macroeconomics to describe the distribution of wealth in Italy in the early 20th century, ... Read Full Answer >>
Related Articles
  1. Economics

    The Federal Reserve

    Few organizations can move the market like the Federal Reserve. As an investor, it's important to understand exactly what the Fed does and how it influences the economy.
  2. Personal Finance

    How The U.S. Government Formulates Monetary Policy

    Learn about the tools the Fed uses to influence interest rates and general economic conditions.
  3. Forex Education

    Why Interest Rates Matter For Forex Traders

    Central banks' rate changes are one of the biggest influences on the forex market.
  4. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  5. Personal Finance

    What Are Central Banks?

    They print money, they control inflation, and much, much more. All you need to know about central banks is here.
  6. Forex Strategies

    What Makes the EUR/USD A Risky Trade Now?

    What are the current risks of trading the EUR/USD pair? The Fed may raise interest rates this summer and the ECB has begun a quanitative easing program.
  7. Personal Finance

    5 Times Cash Rewards Credit Cards Come In Handy

    Using a credit card with cash rewards during emergencies can help you get through tough times, buy you time to pay off costs and even reap a cash reward.
  8. Investing

    Why Some Investors Are Tilting Toward TIPS

    Last month’s five-year TIPS auction drew nearly $48 billion in interest, a sign of recent renewed demand for this inflation indexed asset among investors.
  9. Fundamental Analysis

    Calculating the Herfindahl-Hirschman Index (HHI)

    The Herfindhal-Hirschman Index, (HHI) is a measure of market concentration and competition among market participants.
  10. Economics

    What is the International Monetary Fund?

    The International Monetary Fund fosters global monetary cooperation and sustainable economic growth.

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  3. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  4. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  5. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  6. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
Trading Center