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 ?
When fears were expressed this week that Britain could see yet another surge in house prices, the easy explanation was to blame the availability of too much cheap money.
"It's kind of a skill to find coot clothes for cheap money," says Bettridge.
According to Glass's Information Services, publisher of the motor industry's used car values "bible", the drop in prices of cars aged 7-14 years old is being driven by the fact that younger vehicles have become more affordable thanks to the ready availability of cheap money fuelled by low interest rates.
As the 19th century wore on, parties such as the Greenbacks and Populists made strong showings by standing up for constituents and beliefs that the Republicans and Democrats ignored--especially farmers and their demand for cheap money. In 1890, for instance, the People's Party (the Populists' official name) won 52 seats in the U.S.
Cheap money for customers is like heroin; once they're hooked, it takes a long, painful withdrawal before they're over it.
Manikandan, secretary of the tribal council, said pressuring famished tribals to barter their kidneys for cheap money "is the ugliest form of exploitation." He said June 20 that they have already recorded 26 cases of kidney sales and are now trying to educate tribal people not to sell their kidneys.
"Now we have a lot of capital running away from the stock market, we have cheap money, and a $1 billion ad campaign that brought in people from outside New York."
But elsewhere, a more general attitude has been: Why not sell that extra option, get cheap money for a few years, and worry about the resetting exposure later on?
The bubble created a capital investment boom fueled by cheap money. The world is in for an episode of Ice (deflation) rather than Fire (inflation), but because the Authorities will respond with both fiscal and monetary policy, this will be a winter rather than a new and prolonged Ice Age.
William Michael Cunningham, a registered investment adviser whose Washington, D.C., company, Creative Investment Research, tracks black financial institutions, says cheap money propels the surge.
"I think these guys have been motivated by cheap money," the first-time MP told the Star on telephone on Tuesday.