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.