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 ?
MANILA -- The local stock market found relief after an eight-day bloodbath on Thursday while investors across the region took heart from US Federal Reserve's vow to maintain its easy monetary policy.
central bank will maintain its ultra easy monetary policy with massive asset purchases.
Although the price of oil is always influenced by circumstances peculiar to the petroleum industry, an important ingredient in its high and rising price was (is) the unduly easy monetary policy of the Fed--as was also true in the 1970s.
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.
Global Banking News-August 20, 2015--South Korea central bank head doubts efficacy of easy monetary policy
Vice Finance Minister Toshiro Muto said Monday his ministry wants the Bank of Japan (BOJ) to continue its easy monetary policy.
Global Banking News-March 17, 2015--Japanese central bank maintains easy monetary policy
The head of the IMF, Christine Lagarde, has called on central banks around the world to maintain easy monetary policy.
4 percent in August from a year earlier for the 24th straight month of increase as the Bank of Japan continued to inject abundant funds into the financial system under its easy monetary policy, data from the central bank showed Thursday.
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.
The policy-setting panel of the Bank of Japan (BOJ) voted unanimously for keeping intact its easy monetary policy, saying its effects are beginning to be observed, according to the minutes of its May 17-18 meeting released Wednesday.
1 percent in the hope of encouraging the country to overcome deflation through the central bank's very easy monetary policy.