ABSTRACT
We must now turn our attention to foreign trade and for the first time specifically consider the problems of an open economy. The first part of the chapter is concerned with the reasons for foreign trade and the way in which it is reported. We shall then consider the ways in which foreign trade may be incorporated into a theoretical framework firstly by introducing the current account into a simple Keynesian cross model, and then into the ISLM analysis. We follow this by considering two models which incorporate the capital as well as the current account. In all the analysis the emphasis is on the policy problem of achieving joint internal and external equilibrium.
