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How the Quantity of Circulating Medium Changes



This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: The Effect of War on Currency and Deposits Volume Author/Editor: Charles R. Whittlesey Volume Publisher: NBER Volume ISBN: 0-87014-326-3 Volume URL: Publication Date: 1943 Chapter Title: How the Quantity of Circulating Medium Changes Chapter Author: Charles R. Whittlesey Chapter URL: Chapter pages in book: (p. 12 - 19) tion of this movement since. In the Middle West deposit expansion was only moderate in the last war .and before our entry into the present war. Follow- ing Pearl Harbor, deposits in the Middle West increased more rapidly than the average for the country. The Pacific states, which had experienced the smallest increase before we entered the last war, showed the highest rate of increase thereafter. During the present war they have experienced a more rapid increase than any other region both before and after our entry. In both wars deposit expansion in New England was consistently below the average for the country and in the South consistently above. HOW THE QUANTITY OF CIRCULATING MEDiUM CHANGES Since a demand deposit is, by definition, the right to demand currency whenever desired, it is within the power of individuals to increase or decrease the amount of currency outstanding by simply cashing checks drawn on demand deposits or, conversely, by adding to checking accounts through the deposit of currency. Likewise, an increase or decrease in the vol- ume of other highly liquid assets, such as time deposits and short-term obligations, may influence the amount and activity of currency in circulation. The Volume of Currency The composite choice of individuals, then, governs the amount of cur- rency in circulation. The decision lies with the public. The process of increasing or decreasing the currency outstanding is largely automatic and commercial banks, the Reserve

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