What is an accommodative monetary policy stance? Explain how it helps in managing the trade-off between inflation and growth.

What's New :

What's New :

All India PT Mock Test 2025 (OMR Based)

Mains Answer Writing

Category: Economy (GS -III),

Test Date: 12 Apr 2025

Introduction: Define accommodative monetary policy: A stance where the central bank lowers interest rates or maintains low rates to stimulate economic growth.
Conceptual Basis of Accommodative Policy:
- Tools: Repo rate cuts, open market operations, liquidity infusion
- Objective: Make credit cheaper to boost consumption and investment
Trade-off Between Inflation and Growth: Explain the Phillips Curve idea: inverse relationship between inflation and unemployment/growth
- In low inflation periods, accommodative policy supports growth
- In high inflation periods, such a policy may worsen price rise
How Accommodative Policy Manages the Trade-off:
- Boosts demand during slowdown when inflation is low
- Risk: If applied when inflation is high, may lead to overheating
Conclude accordingly