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Easy Money

What is 'Easy Money'

Easy money, in academic terms, denotes a condition in the money supply. Easy money occurs when the U.S. Federal Reserve allows cash flow to build up within the banking system as this lowers interest rates and makes it easier for banks and lenders to loan money. Therefore, borrowers can acquire money more easily from lenders.

Explaining 'Easy Money'

Easy money occurs when a central bank wants to make money flow between banks more easily thanks to lower interest rates. When banks have access to more money, interest rates to customers go down because banks have more money they want to invest. The Federal Reserve typically lowers interest rates and eases monetary policy when the agency wants to stimulate the economy and lower the unemployment rate. The value of securities often initially rises during periods of easy money, when money is less expensive. But if this trend continues long enough, it can eventually reverse due to fear of inflation. Easy money is also known as cheap money, easy monetary policy and expansionary monetary policy.

Inflation

The Federal Reserve must carefully weigh any decisions to raise or lower interest rates based on inflation. If an easy monetary policy may cause inflation, banks might keep interest rates higher to compensate for increased costs of goods and services. Borrowers might be willing to pay higher interest rates because inflation reduces the amount of a currency's value. A dollar does not buy as much during inflation, so the lender may not reap as much profit compared to a time of low inflation.

How Easy Money Works

An easy monetary policy may lead to lowering the reserve ratio in banks. This means banks get to keep less of their assets in cash, which leads to more money going to lenders. Because more cash goes out to borrowers, the interest rates lower. Easy money has a cascade effect that starts at the Federal Reserve and goes down to consumers.


Further Reading


The unintended consequences of easy money: How access to finance impedes entrepreneurship
link.springer.com [PDF]
… Norberg, Johan, 1973– Financial fiasco: how America's infatuation with homeownership and easy money created the … lead to disaster—low-and middle-income countries starting to save money; the head … I have learned that the interaction of ideas, politics, and economics is what …

Ultra-easy money: digging the hole deeper?Ultra-easy money: digging the hole deeper?
link.springer.com [PDF]
… Norberg, Johan, 1973– Financial fiasco: how America's infatuation with homeownership and easy money created the … lead to disaster—low-and middle-income countries starting to save money; the head … I have learned that the interaction of ideas, politics, and economics is what …

Between Short Money Supply and the Allocation of Credit Resources <span style=[J]' src='/thumbnails/?img=http%3A%2F%2Fen.cnki.com.cn%2FArticle_en%2FCJFDTotal-GLSJ200901006.htm' />Between Short Money Supply and the Allocation of Credit Resources [J]
en.cnki.com.cn [[J]' href='https:/api.miniature.io/pdf?url=en.cnki.com.cn%2FArticle_en%2FCJFDTotal-GLSJ200901006.htm'>PDF]
… Norberg, Johan, 1973– Financial fiasco: how America's infatuation with homeownership and easy money created the … lead to disaster—low-and middle-income countries starting to save money; the head … I have learned that the interaction of ideas, politics, and economics is what …

Is the current financial distress caused by the subprime mortgage crisis a Minsky moment? Or is it the result of attempting to securitize illiquid noncommercial mortgage …Is the current financial distress caused by the subprime mortgage crisis a Minsky moment? Or is it the result of attempting to securitize illiquid noncommercial mortgage …
www.tandfonline.com [PDF]
… Norberg, Johan, 1973– Financial fiasco: how America's infatuation with homeownership and easy money created the … lead to disaster—low-and middle-income countries starting to save money; the head … I have learned that the interaction of ideas, politics, and economics is what …



FAQ


What is money?

Money is any item or verifiable record that is generally accepted as a medium of payment for goods and services and repayment of debts in a particular country or socio-economic context.

Is money an emergent market phenomenon?

Yes, it is an emergent market phenomenon establishing commodity money.

What are the main functions of money?

The main functions of money are distinguished as medium of exchange, unit of account, store of value and standard of deferred payment.

Are there different types of fiat monies?

Yes, there are different types.

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