A high home inflation rate relative to other countries would ____ the home country's current account balance, other things equal. A high growth in the home income level relative to other countries would ____ he home country's current account balance, other things equal.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase

Question

Quizplus · Accepted Answer

A high home inflation rate makes domestic goods more expensive relative to foreign goods, reducing exports and increasing imports, thus decreasing the current account balance. High growth in home income increases demand for imports, also decreasing the current account balance.

A High Home Inflation Rate Relative to Other Countries Would