Although in recent years there has been increasing recognition
of the import¬ance of intermediary imports, the conventional Keynesian
treatment of aggregate " supply has-generally been adopted. By assuming
supply elasticity and conditions of over-production, such imports are
treated as a leakage and-therefore deflationary. This paper investigates
another special case which may be a more realistic model for many
industrialising economies like Pakistan. Namely, J,y assuming supply
bottlenecks and the technical dependence of domestic production on
imported inputs, an increase in imports may be inflationary and have an
import or foreign exchange multiplier effect.
