A high home inflation rate relative to other countries would ____ the home country's current account balance, other things being equal. High growth in the home income level relative to other countries would ____ the home country's current account balance, other things being equal.

Question

​A high home inflation rate relative to other countries would ____ the home country's current account balance, other things being equal. High growth in the home income level relative to other countries would ____ the home country's current account balance, other things being equal.

Quizplus · Accepted Answer

A high home inflation rate relative to other countries makes the home country's goods more expensive compared to foreign goods, leading to a decrease in exports and an increase in imports, which worsens the current account balance. High growth in the home income level relative to other countries increases the demand for both domestic and imported goods. However, the increase in demand for imports is likely to outpace any increase in exports due to higher domestic consumption, also worsening the current account balance.

​A High Home Inflation Rate Relative to Other Countries Would

A High Home Inflation Rate Relative to Other Countries Would