ECONOMIC

tem has to provide sufficient quantities of commonly accepted means of paymentand a procedure for adjusting the relationship between one currencyand another. It also has to provide a set of rules on such questions as theconversion of one currency into another, restrictions on the conversion ofcurrencies, transfers of liquid funds from one country to another, as well asa set of procedures for resolving differences in national approaches to suchproblems. The current negotiations to reform the international monetary systemare designed to improve the existing rules and procedures.SUPPLEMENTProspects for 1974Earlier in this chapter we noted that 1974 would be a year of little outputgrowth and considerable inflation but that in both respects the second halfof the year should be better than the first. The energy crisis has cloudednear-term prospects much more than usual. There is great uncertainty, notonly about the overall GNP change and its distribution between price andreal volume but also about the components of demand. It seems fairly likelythat this year's 8 percent increase in nominal GNP should reflect slowerrates of increase, compared to last year, in consumption, gross private domesticinvestment, and net exports, and a faster rate in combined governmentpurchases. The specific changes are much less certain, but the Councilpresents the following projections of individual demand components underlyingthis year's overall total.Business Fixed InvestmentThe Council expects nonresidential fixed investment to show a rise ofabout 12 percent from 1973 to 1974. It is likely to be the major source ofstrength in demand this year. Despite the small rise in production in thefinal quarter of 1973, the condition of shortages that prevailed in many industriesearlier in 1973 continued through the end of the year. Capacity utilizationwas still very high, especially in the basic materials industries.Delivery times were still long. Aside from the automobile industry, inventorieswere rather low relative to output and sales. All of these were indicativeof tight supply conditions that constituted a strong stimulus for businessto invest in new plant and equipment in the coming year.This is not to say that the character of investment demand will be thesame as in 1972 or 1973. The slowdown of the rise in aggregate demandduring 1973 and the leveling in profits are likely to bring a smaller rise innew investment initiatives than in the preceding 2 years. Even so, the largevolume of new investment under way assures a sizable increase in real expendituresin 1974. Unfilled order backlogs in capital goods industries at theend of December were some 35 percent greater than they had been a yearearlier.43