An increase in French domestic income will hurt France's current account as long as exchange rates are flexible.

Question

Quizplus · Accepted Answer

An increase in domestic income will lead to an increase in imports and a decrease in exports, which will result in a higher trade deficit and a negative impact on the current account. If exchange rates are flexible, the value of the country's currency will decrease due to increased demand for imports, further worsening the current account balance.

An Increase in French Domestic Income Will Hurt France's Current