between the foreign receipts and foreign payments of residents of the country,where"resident" is defined to include all units domiciled in the the foreign exchang The"balance of payments"appropriate to economic analysis may then be defined as: B=Rr-P (1) where Ry represents aggregate receipts by residents from foreigners.and P represents aggregate payments by residents to foreigners.The difference between the two constitutes a surplus(if positive)or a deficit (if negative);a surplus is accmpanied by sales of foreign currency to the exchange authority by residents or foreigners in exchange for domestic currency.and conversely a deficit is financed by sales of domestic currency by residents or foreigners to the authority in exchange for foreign curency.To remedy a must be taken to increase reipts from foreigners and reduce payments to foreigners,or increase receipts more than payments,or reduce payments more than receipts;and conversely with a surplus (though the rectification ofa suplus is not generally regarded as a"balance-of payments problem") The"balance of payments"can,however,be defined in another way,by making use of the fact that all payments by residents reeipts by residents;in symbolsR=P Hence the balance of payments may be written B=R+R,-Pr-P,=R-P. (2) That is the balance of payments is the differene between agregate reeipts by residents and aggregate payments by residents.A deficit implies an excess of paymentsover receipts,and its rectification requires that receipts be increased and payments decreased,or that receipts increase more than payments.or that receipts decrease less than payments;and conversely with a surplus.In what follows,however,surpluses will be ignored,and the argument will be concerned only with deficits. The balance-of-payments deficit in tems of an excess of aggregate payments by by residents nstitutes poin for the generalization of the "absorption approach"to balance-of-payments theory-what might be two important aspects of a deficit-its monetary implications,and its relation with the aggregate activity of the economy-from which attention tends to be diverted by the traditional which le to fallacious anysis.These wo be discusdum beginning with the moneary impicationofa deficit. The excess of payments by residents over receipts by residents inherent in a balance-of. it is nee 5