Hello and welcome. Thank you for providing an opportunity to assist you.
You have asked a very good question. Let me try and throw some light on these issues.
To begin with, you will need to know what is Fed's QE -- Quantitative Easing. This, is a method, as you say to increase the money supply.Quantitative easing (QE) is the Federal Reserve's program of buying bonds from its member banks. The purpose of this expansionary monetary policy is to lower interest rates and spur economic growth.
The Fed purchases U.S. Treasury notes and mortgage-backed securities (MBS). It issues credit to the banks' reserves to buy the bonds.
Where does the money come from to purchase these assets? The Fed has the ability to simply create it. This unique ability is a function of all central banks. It has the same effect as printing money.
Quantitative easing is a massive expansion of the Fed's normal open market operations. Even before the recession, the Fed held between $700-$800 billion of Treasury notes on its balance sheet
, varying the amount to tweak the money supply. The asset purchases are done by the Trading Desk at the New York Federal Reserve Bank.
The Fed adds credit to the banks' reserve accounts in exchange for MBS and Treasuries. The reserve account is the amount that banks must have on hand each night when they close their books. The Fed requires that around 10% of bank deposits be held either in cash in the banks' vaults or at the local Federal Reserve bank. For more, see Reserve Requirement.
When the Fed adds credit, the banks have more than they need in reserves. They now have more to lend to other banks. As banks try to unload their extra reserves, they drop the interest rate they charge. This is known as the Fed funds rate. This rate is the basis for all other interest rates. (Source: Federal Reserve Bank of San Francisco)
Such action of the Federal Reserve increases the money supply because lower interest rates allow banks to make more loans. Bank loans stimulate demand by giving businesses more money to expand, and shoppers more credit to buy things with.
So, as you say, all these money certainly finds its way in the system with the public. Also, Keynes too has tightly said that you should spend your way through recession. The spending will fuel demand and this demand will absorb the supply and ultimately recession goes away. And to spend, Fed, through it various measures, gives these monies to the people.
I hope this helps,
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