In reaction to the Great Depression, the gold bullion standard was abandoned in favour of a system in which countries fixed their currencies to the U.S. dollar and retained dollar reserves in the United States. Velocity is defined as the ration of real GNP to real money holdings. Inflation created by this money creation erodes the real value of the money held by the country's citizens. He was a chief architect of the 1944 Bretton Woods Conference, which established the International Monetary Fund, and argued strenously for a system of fixed exchange rates. In the past, such lags have been measured to range from a few months up to two years.
Some economists say that lags render unpredictable the effects of discretionary monetary policy.
By the time a policy takes hold, they say, the state of the economy may have changed, and measures intended for a recession may take hold once the economy is already in an upturn with undesirable consequences. The multiplier is the result of fractional reserve banking. When a deposit is made to a bank, the bank is required to keep only a part of that money within its coffers, and can lend out the rest, recycling it back into the economy. This happens because the initial deposits fuels repeated rounds of deposits and lending. Variations in the money multiplier will affect the total money supply and inflation.