A method of determining the balance of trade (BOT) of a given country which holds that the balance of trade is equal to real national income minus absorption. In turn, the balance of payments (BOP) is determined by real national income and absorption, that is by how much is produced and how much is consumed. Furthermore, this approach emphasizes that changes in real domestic income is a determinant of of a country’s balance of payments and exchange rate.
June 15, 2021