cheap money

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Related to Loose Monetary Policy: Tight Monetary Policy

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 ?
"2013 promises to be a year of loose monetary policy and less systemic risk.
However, Perng Fai-nan pointed out that the economy will bottom out in the first quarter of 2012, as a result of which the CBC will maintain an adequate loose monetary policy.
LONDON: Brent crude oil edged above $124 a barrel Wednesday as support from a weaker dollar, ahead of a Federal Reserve statement expected to maintain loose monetary policy, countered rising U.S.
dollar amid speculation that the Federal Reserve will maintain its current loose monetary policy for a long time.
Zhang Zhiwei, an economist with Nomura International, said the rise in inflation was mainly due to China's loose monetary policy to spur growth and a consumer spending spree during the Lunar New Year holiday, which fell in February this year.
Before 2011, gold's phenomenal rally was largely driven by the loose monetary policy of the Federal Reserve and other central banks around the world.
Summary: It is unlikely that the Federal Reserve will tighten its loose monetary policy at any time soon, Chairman Ben Bernanke of the Federal Reserve said in an...
Germany's finance minister also warned on Friday that the ECB's loose monetary policy risked giving some eurozone governments an incentive to slow their reforms.
However, we are not in a normal investment climate and due to the market's addiction to loose monetary policy, investors are still looking for poor data from the US, to ensure that the Federal Reserve keep the flow of loose money and the resulting liquidity as abundant as possible.
jobs data and views that the European Central Bank will maintain its loose monetary policy for a while to bolster economic activity.
They added that dollar fell on expectations that under Obama the Federal Reserve would continue with the loose monetary policy.
The absence of expanding output will mean that the central bank is likely to maintain a very loose monetary policy, holding the British Pound back against the currencies of countries where economic growth and by extension interest rates will head higher sooner (most notably the US Dollar).