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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.
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monetary accommodationthe use of MONETARY POLICY to ‘accommodate’ sudden supply-side changes in the economy, for example, an increase in nominal money supply to offset the deflationary impact of an oil price or other major cost increase. In the absence of monetary accommodation, the COST-PUSH INFLATION associated with an increase in oil prices would act to reduce the real money supply, increase interest rates and cause AGGREGATE DEMAND to fall. To avoid such recessionary tendencies, the authorities need to increase the rate of monetary growth to restore lost purchasing power.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005