I understand the fact the Increase in Money Supply reduces the interest rate in Money Market.
But these two explanations are confusing me a lot. I'm not able to understand which is correct.
Let's Say Central Bank Increase Money Supply using Open Market Operation. So, it will buy bonds > Bond Demand Up > Bond Price Up > Bond Interest Down > Money Demand Up till Ms = Md
Due to Increased Money Supply, People are holding more Money they wish in their Pockets. They will use that extra money to Buy Bonds and then the same chain effects as above will follow.
Both the explanations are correct, as far as I think. But which one is ultimately on work? Or are both working (2nd after 1st)?
Please help me in understanding. Thanks in Advace.