ABSTRACT
Equilibrium of supply and demand for imports and for exports does not imply that the values of imports and of exports are equal one to the other or to a given balance on capital account. If the technique of supply and demand is applied to an aggregative model of international trade, two sets of relations must be taken into account. A possible mechanism through which equilibrium of the balance of payments may be maintained is that of adjustments in the general price level in response to changes in the quantity of money. The gap in the balance of payments is then closed by an item which has nothing to do with trade. Over a certain period of time their effect on the balance of payments may thus cancel out, and if sufficient reserves of foreign exchange are available, no mechanism may be required to keep it in equilibrium.
