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.