The simple quantity theory makes it appear that increases in the money supply show up right away in more spending. However, monetarists recognize that there are significant and long lags in this transmission process. One prominent version assumes that people, getting new money, first use it to buy financial assets, such as stocks and bonds.
Only over time does this new money make its way into new spending.
To see how, suppose everyone is alike: they hold $2,000 in cash and want 20 percent of their income in cash (there are no demand deposits in this economy). So everyone’s money income is $10,000. Real output per person is at its potential level of 10,000 units, so the price level is $1. Then, one morning, they wake up and find $1,000 in new cash under their pillows. Assume there is only one other asset: stocks. How do you think they will react? How will this money eventually get into the spending stream?