This formulation suggests that policies for correcting current-account deficits can be classified broadly into two types:those which aim at (or rely on)increasing output,and those of the policy,since income and expenditure are interdependent:expenditure depends on and varies with income,and income depends on and varies with expenditure (because part of expenditure isdevoted tohome-produced any change in me or expenditure will initiate multiplier changes in both.It can,however,readily be shown that,so long as an increase in income induces a smaller change in aggregate expenditure,the multiplier repercussions will not be large the impact effect ofachange .so that an impect increase in output or decrease in expenditure will always improve the balance on current The distinction b eenouput-ncreasing and plic may usfuly be put in another way.Since output is governed by the demand for it,a change in output can only be brought about by a change in the demand for it;a policy of incrensing domestic output expenditure(either foreign or domestic)on that ouput Given the level of expenditure,this in tur involves effecting a switch of expenditure (by residents and foreigners)from foreign output to domestic output.The distinction between output-increasing and expenditure-decreasing policies,which rests on the policis may therefore be replaced by a distinction between expenditure-switching policies and expenditure-reducing policies,which rests on themethd by which the effectsare achieved. Apolicy of expenditure-reduction may be applied througha variety of means -mone restriction,budgetary policy.or even a sufficiently comprehensive battery of direct controls Since any such policy will tend to reduce income and employment,it will have an additional attr ction if the well sa balance-of-payments deficit,but a corresponding disadvantage if the oountry is suffering from unemployment. Moreover,since the impact reduction in expenditure and the total reduction in inme and a given deficit are larger the larger the proportion of the expenditure reduction falling on home-produced goods,and since different methods of expenditure-reduction ng the c o in the text, dy- (wherethereductidomestic ut).gives the result: -)dE. e+en ludes indu t液m d unity ol the text.) diture reduction will lo