ABSTRACT
Autonomous changes in export demand and demand for imports will set up multiplier effects. On the whole, the balance of trade may be expected to vary in-with the level of National Income. The reserve may consist of gold or of any other suitable foreign currency; the authorities will be prepared to trade foreign for domestic currency to any extent at the fixed "official" exchange rate. If hard pressed, they can even impose exchange control, under which domestic currency cannot be exchanged for foreign currency without their permission; by refusing a suitable number of applications, they may be able to frustrate enough of the demand for foreign currency to minimize the drain on reserves. To buy imports is to refrain from buying domestic output; in this, the demand for imports is exactly similar to saving, the other leakage by which demand-steam escapes from the multiplier-engine.
