How does raising the debt ceiling affect the money supply?

Question

ZI understand the Fed will be issuing alot of debt, -but does that directly increase money supply? If so, how?

In: 2

Answer 1

The simple answer is no, it doesn’t increase the money supply. When the government borrows more money, they sell bonds in exchange for US Dollars that already exist.

The Federal Reserve *can* increase the money supply by purchasing assets (including government debt) on the open market, but they buy those assets from other financial institutions with newly created money (as opposed to lending directly to the government).