cheap money

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Cheap Money

A monetary policy in which a central bank sets low interest rates so that credit is easily attainable. This makes borrowing easy for business, which stimulates investment and expansion of operations. The immediate result of cheap money is a boost in stock prices; in the medium term, cheap money promotes economic growth. However, if cheap money remains in the economy for too long, it can lead to a situation in which there is a glut of currency or too many dollars chasing too few goods and services leading to inflation. For this reason, most central banks alternate between policies of cheap money and tight money in varying degrees to encourage growth while keeping inflation under control.

cheap money

cheap money

a government policy whereby the CENTRAL BANK is authorized to purchase government BONDS on the open market to facilitate an increase in the MONEY SUPPLY (see MONETARY POLICY).

The increase in money supply serves to reduce INTEREST RATES, which encourages INVESTMENT because previously unprofitable investments now become profitable as a result of the reduced cost of borrowing (see MARGINAL EFFICIENCY OF CAPITAL/INVESTMENT).

Cheap money policy, through MONEY SUPPLY/SPENDING LINKAGES, increases AGGREGATE DEMAND. Compare TIGHT MONEY. See LIQUIDITY TRAP.

References in periodicals archive ?
The governor expressed his scepticism over the lasting effects of easy monetary policy on demand.
Japan's central bank has said that it has maintained its easy monetary policy.
Lagarde said that global growth was likely to remain tepid this year, and central banks should keep their easy monetary policy in place.
Initially, massive demand stimulus from aggressively stimulative fiscal policy and extremely easy monetary policy kindled the demand side of the economy.
central bank will maintain its ultra easy monetary policy with massive asset purchases.
Analysts believe that the move is the beginning of a reversal of the bank's easy monetary policy regime amidst signs of strong economic revival.
Easy monetary policy in the form of low real interest rates, especially in the United States, helped fuel the flow of capital into emerging markets during 2002-04, as it did in the late 1970s and the early 1990s.
19 to 20 showed Wednesday that some policymakers considered options to influence the foreign exchange market and help weaken the yen through easy monetary policy.
The Bank of Japan (BOJ) may not end its easy monetary policy soon, according to a Japanese government official.
Vice Finance Minister Toshiro Muto said Monday his ministry wants the Bank of Japan (BOJ) to continue its easy monetary policy.
Bank of England policymaker Adam Posen has said it was too early to exit the central bank's easy monetary policy.
The central bank said that it has enough leeway to continue its easy monetary policy and added that there is no urgent need to bring in an exit strategy.