ABSTRACT
Our discussion in Chapters 3-5 of the reliance upon variations in relative prices for purposes of balance-of-payments adjustment was predicated generally on the maintenance of a full employment level of output (income), whereas prices were assumed for the most part to remain unchanged in our discussion in Chapter 6 of the effects on the balance of payments of variations in the level of output. In actuality, income and prices change together so that we need to combine our two approaches. Unfortunately, this is rather difficult to do in a formal manner because of the complexity of the relationships. We shall nevertheless go part of the way and hope that our analysis does not do too much violence to reality.
