Xuan Lam, Nguyen

The logic of monetary injection

CB injects money into the economy by buying government bonds and paying money
 Some of these money are held as currency → ……

for the public → 
 Some are deposited in banks → ……


On the one hand,

 Buy g & s 
 
Cu ↑ → 

 Buy corporate bonds → Spending on I
  → Demand for g & s ↑ (1)


D ↑ → Loans ↑ → Spending on I 

On the other hand,

Cu ↑
→ MS ↑ but not altering A, L, K, H, N → A. F(L, K, H, N) = Y
D↑

→ Supply of g & s unchanged (2)

1
(1) & (2) → P ↑ → ↓ → People need more money for every transaction → MD ↑
P

Remarks:

1. The quantity of money (M = Cu + D) in an economy determines the value of

1
money   .
P
2. Growth in the quantity of money (Cu + D = M ↑) is the primary cause of
inflation (P ↑).