The Balance of Payments and the National Economy

Abstract

In a closed economy with government activity there are three types of expenditure which generate income — private consumption, private investment and government expenditure — and three ways in which income may be disposed of — by consumption, saving and tax payments. In a closed economy total expenditure can fall short of income but cannot exceed it.

Throughout the chapter and the book, exports and imports are defined in such a way that the national income equals the national output. The difference between income and output is net factor pay­ments abroad.