The classic answer is that by buying your bonds they have put more money into the economy. I suppose that's true because even if you just leave it in your bank account the bank will go out and loan more money to people. But like you, I wonder if go out and buy another investment, particularly another government bond, how that puts money into the economy. I guess not matter what you do, the money that bought the bond winds up in some bank account and then the bank will loan more money. I think we are going into deflation right now, but they should be able to pull us out of it.
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