been investigated at length by international trade theorists,and require only summary treatment here.Export divert foreign expenditure away from the counry' output if the foreign demand is inelastic.while import restriction will divert domestic xpenditure abroad if demand for imports is inelastic and the technigue of restriction allows the oreiger the benefitof the incresed value of impors to estic osumers.Devaluation has the partial effect of diverting domestic expenditure abrod,via the increased cost of the initial volume of imports.and this adverse switch will not be offsct by the favourable effect of substitution estic for foreign goodsat home and abrod if import demand elasticities average less than one half. While the elasticity requirement devaluation just cited is familiar,the approach developed in this paper light on what non-fufim of the requirement implies.From the equation B =Y-E.it is dear that.if direct effects on expenditure from the initial income level are neglected,devaluation can worsen the balance only rld demand for theour'ouput.This implies that the coury'soupu is in a sense a"Giffen case"in world consumption;and that the market for at least one of the ommodities it produces is in unstable equilibrium.Neither of these ways ofstating the conditions for exchange instability makes the possibility of instability as their equivalent,reached through sectoral analysis,in terms of elasticities of import demand. problem rete to the theadditiona domestic output required to satisfy the demand for it ereated by the expenditure-switching policy.Here it is necessary.to distinguish two cases,that in which the economy is under. employd and that in which it is fully both the the factors on which the outcome of the policy depend differ between the two 1.If the economy has unemployed resources available,the additional output required to meet the employment:in this case the switch policy has the additional attraction of increasing mployment and income.The increase in domestic output may tend to raise the domestic price level,through increasing margina and conve ersely the foreign price level may tend to fall,thus partially counteracting the initial effects of the switch oolicy:but such repercussions can legitimately be analysed in terms of elasticity concepts,since 2.If the economy is already fully employed,however,the additional output required cannot be provided by increasing production;it can ony be provided through a reduction in the ②SeE.V.MC "The th ge rates",《A rican Eo 12