Business Environment, 4th Edition by Pearson

266 | Chapter 10

there is a generation of money income in the home economy due to export earnings

but, simultaneously, there is a reduction in the domestic supply of goods because

products are exported. If an export surplus is not balanced by increased savings, or

through taxation, the domestic spending will be in excess of the value of domestic

output, marketed at current prices.

Diversification of Goods

A diversion of resources from die-consumption-goods sector either to the capital-

good sector or the military sector (for producing war goods) will lead to an

inflationary pressure because while the generation of income and expenditure

continues, ...