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This diagram shows that the amount of amplifier gain is reduced as the level
of input signal is increased. This keeps the input level to the modulator to a
relatively small dynamic range. At the receiving end of the system, an expanding
system is used to provide additional amplification to the upper end of the output
signal. This recreates the shape of the original input audio signal.
For digital audio signals, companding is used in pulse code modulation
(PCM). The process involves decreasing the number of bits used to record the
strongest (loudest) signals. In the digital file format, companding improves the
signal-to-noise ratio at reduced bit rates. For example, a 16-bit PCM signal may be
converted to an eight-bit ".wav" or ".au" file.