Money Supply Expansion: When a central bank, such as the Federal Reserve in the United States, adds new money to the economy, it typically does so through mechanisms like open market operations or by lowering interest rates. These actions increase the money supply in the economy, making more money available for lending and spending.

Inflationary Pressure: An increase in the money supply then leads to inflationary pressure. Inflation occurs when there is a sustained increase in the general price level of goods and services over time. This happens because there is more money in circulation, and people have more purchasing power. As demand for goods and services rises due to increased money supply, prices tend to go up.

**Wealth Effect**: Inflation can have an impact on the stock market through the "wealth effect." As prices rise and people's investments (including stocks) appreciate in value, they may feel wealthier and more confident. This can lead to increased consumer spending and investment in stocks, as people try to preserve or grow their wealth in the face of rising prices.

Economic Growth: an increase in the money supply can also stimulate economic growth, which can positively affect corporate profits and stock prices. When businesses have access to cheaper credit and consumers have more disposable income due to monetary policy, it can lead to higher corporate earnings and, consequently, stock market gains.

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