Traveler's checks have no reserve requirements and are included in M1. When people travel during the summer and convert some of their checking account deposits into traveler's checks, explain what happens to the monetary base?
When this scenario takes place within the economy the main consequence is that there is a shift from one component of the money supply such as checkable deposits with less multiple expansion to another money supply such as traveler's checks. This therefore causes the money supply with multiple expansions to increase.
