Final answer:
The incorrect statement about the Atlas conversion factor is option B, as it inaccurately describes the mix of inflation rates used in calculations. The Atlas factor is key in providing stable GNI estimates, ensuring income comparisons are less influenced by exchange rate volatility and more by economic performance.
Step-by-step explanation:
The option that is not true regarding the Atlas conversion factor is B. It is the arithmetic average of the current exchange rate and the exchange rates in the two preceding years, adjusted by the ratio of domestic inflation to the combined inflation rates of the eurozone, Japan, the United Kingdom, and the United States. This statement is incorrect because the Atlas conversion factor does take into account the exchange rates over a three-year period and inflation, but it does not use the combined inflation rates of just the eurozone, Japan, the UK, and the US. Rather, it considers the inflation rates of several countries, including those mentioned, in its methodology. Developed to improve the accuracy of comparing income across countries by accounting for inflation and preventing misleading perceptions due to exchange rate fluctuations, the Atlas conversion factor provides a more stabilized measure of GNI. Moreover, dissatisfaction with both PPP and conversions using official exchange rates led to the adoption of the Atlas methodology by the World Bank, which supports more consistent per capita GNI estimates that are less dependent on volatile exchange rates. This ensures that changes in income rankings are more reflective of relative economic performance than just currency value shifts.