CH. 20 PURE THEORY OF THE CREDIT CYCLE 309

assumption Beta, that this is done not in one jumpbut by steady equal increments, so that the rate of

in-put - ^ a _ ^ into the machine of process per week is

increased in the proportion x and is then maintained

at the level + x). Thus after 2r - 1 weeks

the earnings will be increased to a(l + x) and will bemaintained thereafter at this steady level.

This means that in the first week earnings

will be increased to a(l +^^ the secon d to

a 1 +,

2x

in the third to a^l +

3cc

until in

2r-\J’ “ ““““-' 2r-l /

the 2r - 1th week they have reached a(l+x) andemployment is at full capacity.

The increased earnings will not affect the price-level in the first time-interval, because we haveassumed wages to be paid at the end of the week, sothat the additional earnings do not come on to themarket as buying power until the second week.During the second week, however, the buying power,which will come on to the market against the sameamount of available real output as before, will be

increased to alt +

cc(l -m)

2r -1

since

ax

2r -1

is the increase

axm

of income and [ is the proportion of this added

to the carry-forward and not spent, so as to satisfyAssumption Zeta. 1 The result is that the price-level

will rise to ^

1 If m is greater than one, i.e. if the carry-forward is more than a week’sincome, this assumption is not likely to be fulfilled except after a time-lag;for, in this case, when incomes are increasing, it is probable that the carry-forward will be raised in the same proportion only gradually, so that thevelocity of circulation of the income-deposits will temporarily fall below itsnormal value.