Let’s assume that the Federal Reserve does NOT discontinue injecting liquidity into the Repo market but, instead, continues a long-term policy of continuous and regular liquidity injections. Let’s say that in order to do this, the Fed continues to grow its balance sheet via a continued, long-term policy of $60 billion of treasury bill purchases per month.

How would the money supply (M2) be affected if the kept Fed growing the balance sheet at this rate over the long term? (ie. Would money supply increase?)

How would the velocity of M2 be affected? (ie. Would the velocity rate of M2 increase?)




*Note: I am not a student. The question is for my own education, not for any class assignment.


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