ABSTRACT
The huge volume of liquid assets created by the war financing offers an opportunity for econometric research on the impact of these assets on the consumption function and the inducement to invest. A budget surplus cannot be large enough to cut down the liquid assets appreciably in one or two years. Fortunately, however, a budget surplus has influences in various directions. These are the income effect, the asset effect, and the monetary effect. The income effect influences the total outlay on goods and services. Funds are drawn, via the tax surplus, from the income stream, leaving a smaller disposable income to spend. A Treasury cash surplus may be used to decrease the money supply. This is the monetary effect. A cash surplus can be used to "damp down" monetary expansion. But this cannot be the major restraining factor. The relative interest rate structure of private and public securities does provide a satisfactory guidance for flow of savings into investment channels.
