Definition of cheap money
- A period of low interest rates to boost spending and investment.
The cost of money is related to the interest rate. Cheap money implies interest rates are low and therefore, the cost of borrowing money is very low.
Cheap money is a policy often used during a recession. For example, in the 1930s, the UK had a policy of cheap money, hoping this would stimulate the economy. It was largely unsuccessful apart from investment in housing as people took advantage of low-cost mortgages.
Japan had a period of cheap money in the 1990s and 2000s, however, again it was not very successful in stimulating the economy. This is because of the liquidity trap.
- Liquidity trap
- Quantitative Easing – policy to create money and reduce yields on government and corporate bonds