Question

Which of the following is NOT true?

I. Countries with greater potential for economic growth and lower tax rates on corporate earnings may attract DFI (direct foreign investment).
II. A relatively high home inflation rate in the home country ends to increase imports and decrease exports, thereby increasing the current account balance, other things equal.
III. A high growth in the home income level relative to other countries would decrease the home country's current account balance, other things equal..
A. III only
B. II only
C. I and III
D. II and III

Answer 1

The statement that is NOT true is III: A high growth in the home income level relative to other countries would decrease the home country's current account balance, other things equal.

The statement that is NOT true is III: A high growth in the home income level relative to other countries would decrease the home country's current account balance, other things equal.

Countries with greater potential for economic growth and lower tax rates on corporate earnings may attract DFI (direct foreign investment), which can increase their current account balance. A relatively high home inflation rate tends to increase imports and decrease exports, leading to an increase in the current account balance. However, a high growth in the home income level relative to other countries would lead to an increase in imports due to increased purchasing power, which can contribute to a decrease in the home country's current account balance.

Therefore, the correct answer is A. III only.