It is only during the present decade that proper consideration has been given to the impact of externally generated forces upon an individual country’s domestic rate of inflation. There are two reasons in particular why this received comparatively little attention in previous decades. In the first place The General Theory was concerned primarily with an assessment of the impact of demand management in a ‘closed’ economy, that is in an economy whose dependence upon international trade to satisfy domestic demand is very small. That this was so should come as no great surprise in the light of the massive downturn in trade between countries during the inter-war depression. One legacy of The General Theory was, however, to distract attention away from the international sector even in the boom years after the war. In the second place it was the United States which played the dominant role in international affairs post-war, and the United States has always been a closed economy by international standards, as is shown by Table 7.1. On the other hand both the United Kingdom and most of the other highly industrialised nations have fairly open economies, and it has been suggested in recent years that the current inflation can be attributed in part to certain changes in the relationship between these countries and the United States which took place during the 1960s.
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Notes and References
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