cheap money


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Related to cheap money: fiat money, Dear money

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 ?
Speaking to the press after receiving the Governor of the Central Bank of Greece, Finance Minister Charilaos Stavrakis was asked why the government is not taking advantage of cheap money from the ECB in order to inject more liquidity into the banking system, to encourage banks to lower their lending rates.
They will have raised relatively cheap money with no added pain.
A robust set of labour market figures in the world's largest economy would heighten expectations about a rates hike by the US Federal Reserve - a prospect giving jitters to equity investors buoyed by years of cheap money.
A declining population at home and cheap money being given away by QE measures are helping Japanese firms expand outside the nation.
The BoJ policies may have 'over- pushed' the economy through adding too much cheap money, Quantitative Easing (QE), after the global financial crisis had eased.
While in the early stages of US recovery, rerating of equity prices was largely driven by cheap money, now with corporate earnings driving the equity valuations, market has reached a stage where it no longer requires extraordinary liquidity support, he said.
The Royal Court confiscation hearing was centred around cocaine trafficking evidence between 1991 and 1996, with a covert wiretap supposedly recording Warren bragging of knowing a cheap money launderer who "cleaned" PS10m/ PS15m a week of his drugs cash being key to the case.
It appears that the prospect of the end of cheap money in the west, with the near certainty of the end of even cheaper money in China, is forcing the cost of capital up across the emerging markets.
The scheme's participant banks will still be able to draw down cheap money based on the size of their consumer lending until January 2015, but no additional lending in 2014 to households will count towards the total amount of low-rate cash they can access.
The US central bank's cheap money policy is aimed at supporting economic recovery and has also underpinned stock markets worldwide for several years.
Traders were waiting for details announced last night of the Federal Reserve's most recent meeting, but the Fed has already suggested it will ease off printing cheap money in the world's biggest economy.
The first has been the abundance of cheap money in the last couple of years brought on by loose financial policies that have led investors around the world to search for yield.