If govt bonds like gilts are liquid,(like given on pg 7 of course notes) then why can it not increase money supply?
depends on how these are used: if govt issues more of it, money supply goes down, it govt buys them back, reverse happens. However, note that bonds only substitute money , they are not legal tender
When govt sells bonds and treasury bills to banks, then why does the purchase of bonds leave money supply unchanged and not be used for credit creation whereas the purchase of treasury bills increases both?
