ABSTRACT
The original Keynesian balance of payments theory was the absorption model developed by Alexander, of the IMF, in the early 1950s. As in all Keynesian models, the balance of payments, on current account, is analysed as a macroeconomic phenomenon in the goods market. The (current account) balance of payments will necessarily equal the difference between aggregate domestic output and aggregate domestic expenditure (with a surplus if output is larger and vice versa). This conclusion follows from a manipulation of the basic national income identity, which is that there are three ways of measuring national income: income, output (O) and expenditure (E), of which only the latter two are relevant here.
