Economics (AS & A Level) · Oct / Nov 2022 · Paper 32 · Question 28

Country X has a low rate of inflation and a stable currency and unemployed resources. It attracts $25 billion of direct foreign investment. What is most likely to be a positive benefit of the inflow of this foreign direct investment for country X?

1. AAggregate demand will be boosted through the investment multiplier.
2. BCountry X will have to use its foreign reserves to eliminate any trade deficit.
3. CThe balance of payments will be affected with the outflow of profits to foreigners.
4. DThe rate of inflation will increase if country X tries to increase capacity.

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