Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Tutoring
  • Home
  • Economics, Finance, & Analytics
  • Economic Analysis & Monetary Policy

Easy Monetary Policy - Explained

What is Monetary Easing?

Written by Jason Gordon

Updated at April 25th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is Monetary Easing?How does Monetary Easing Happen?Inflation and Easy MoneyAcademic Research on Easy Monetary Policy

What is Monetary Easing?

Easy money is an economic term used to describe money supply. It is also known as monetary easing and expansionary monetary policy. The Central Bank of every country is tasked to regulate money supply in the country. In the United States, the money supply in regulated by the Federal Reserve Bank. The money supply concerns the amount of currency issued into society. They use different tools to inject or contract the money supply. For example, when the Federal Reserve Bank wants to increase money supply in the country, it lowers the overnight interest rate (the rate charged to banks to borrow money). As such, borrowing for banks becomes less costly. This, in turn, makes money more accessible and less costly for borrowers from the lender banks.

Back to:ECONOMIC ANALYSIS & MONETARY POLICY

How does Monetary Easing Happen?

As discussed, monetary easing occurs when the Federal Reserve Bank wants to increase the money supply in the country. The purpose of monetary easing is to stimulate economic growth and to push down the unemployment rate in the country. The economic stimulus is caused by the effect of introducing more money into the system. This primarily happens in two manners: Through the Federal Open Market, the Federal Reserve Bank purchases treasury securities from the US Government. Through government spending (spending programs, grants, employee salaries, etc.) the money will be injected into economy and vice versa. The next method is by lowing the overnight interest rate at which banks (lending institutions) borrow money. This gives these borrowing banks more money to lend. If money is easier to acquire by loan, individual consumers are more able to acquire loans to purchase things, such as houses, cars, etc. It also makes it easier to expand businesses operations by purchasing additional equipment, upgrading facilities, and hiring more employees. This increases the supply side of the economic production-consumption equation. Also, the money spent on equipment, facilities, and employees flows into the economy (think about the businesses selling the equipment and the employees with more money to spend) and creates additional demand. The total production and consumption increases.

Inflation and Easy Money

Central banks are reluctant to maintain an easy money policy (low overnight interest rate) for long periods of time, as it may create inflation in the country. Inflation causes the purchasing power of money to diminish (meaning that prices for goods and services rises). As such, the Federal Reserve Bank may adopt monetary policy according to the needs of economy. For instance, if there is inflation and the government wants to control inflation then the Federal Reserve Bank may adopt contractionary monetary policy. If there is need for investment and the unemployment rate is rising, the bank may adopt expansionary monetary policy to foster economic activities in the country.

Related Topics

  • Monetary Policy
  • Contractionary and Expansionary Monetary Policy
  • Loose vs Tight Monetary Policy
  • Easy Monetary Policy 
  • Accommodative Monetary Policy
  • Dove & Hawk (Monetary Policy) - Explained
  • Tight Monetary Policy - Explained
  • Stabilization Policy
  • Pushing on a String



monetary policy

Was this article helpful?

Yes
No

Related Articles

  • Lipstick Effect - Explained
  • Mathematical Economics - Explained
  • Comparative Advantage - Explained
  • Chamber of Commerce - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand