Internal Balance and External Balance

  • Ajit K. Dasgupta
  • A. J. Hagger

Abstract

The discussion of Chapters 6 and 7 (see in particular sections 6.2 and 7.2) shows that a change in aggregate demand has consequences both for internal balance and for external balance. As regards the internal consequences, what emerges from these chapters is that a reduction in aggregate demand tends to drive the economy towards balance when demand is excess and away from balance when demand is deficient. Conversely, an increase in aggregate demand means a movement towards balance when demand is deficient and a movement away from balance when demand is excess. The external consequences of changes in aggregate demand arise from the short-run link between aggregate demand and real imports. A reduction in aggregate demand induces a fall in the quantity of imports (a movement down the short-run import function) ; and, given all the other elements in the external situation, this means a movement towards short-run external balance if international reserves are decreasing and away from balance if they are increasing. Conversely, an increase in aggregate demand induces a short-run increase in real imports and a movement towards external balance if the reserves are increasing and away from balance if they are decreasing.

Keywords

Aggregate Demand Excess Demand Balance Line Export Volume Initial Equilibrium 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Reading List

  1. Corden, W. M., ‘The Geometric Representation of Policies to Attain Internal and External Balance’, Review of Economic Studies (Oct 1960).Google Scholar
  2. Hemming, M. F. W., and Corden, W. M., ‘Import Restriction as an Instrument of Balance-of-Payments Policy’, Economic Journal (Sep 1958).Google Scholar
  3. Swan, T. W., ‘Longer-Run Problems of the Balance of Payments’, in Arndt, H. W., and Corden, W. M. (eds), The Australian Economy ( Melbourne: Cheshire, 1963 ).Google Scholar

Copyright information

© Ajit K. Dasgupta and A. J. Hagger 1971

Authors and Affiliations

  • Ajit K. Dasgupta
    • 1
  • A. J. Hagger
    • 2
  1. 1.Sir George Williams UniversityMontrealCanada
  2. 2.University of TasmaniaAustralia

Personalised recommendations