The absorption approach was first announced by Alexander (1952). He wanted to look at the balance of trade from the point of view of national income accounting. It is beneficial in pointing out that an enhancement in the balance of trade calls for an growth in production relative to absorption. The absorption approach aims to expression how reduction might change the relationship between expenditures or between absorption and income – in both nominal and real terms.
It is value observing that great importance is laid on the current account balance. This approach contends that the devaluation of a currency would lead to an increase in inflationary prices, which would in turn cancel the initial effect of an increase in prices (Patricia, & Osi, 2010 b).