4.1.4

Question 1

What is the formula of Terms of Trade?

Answer 1

Index of average export price/Index of average import price X 100

Question 1

Define Terms of Trade

Answer 1

The ratio of export prices to import prices

Question 2

What does Terms of Trade show us?

Answer 2

How expensive our exports are compared to imports, and can the value of exports pay for the value of imports.

Question 3

5 Factors affecting Terms of Trade

Answer 3

Raw materials
Tariffs
Productivity Rates
Inflation Rates
Changes in Exchange rates

Question 4

How does Tariffs effect T of T?

Answer 4

Deterioration of T of T for countries who predominantly import

Question 5

How does Exchange rates effect T of T?

Answer 5

Strong pound will make imports cheap therefore T of T improves
Weak Pound will make exports expensive deteriorating T of T

Question 6

Impacts of T of T

Answer 6

Value of exports increasing faster than value of Imports, Able to purchase more units of imports, Living standards Increase

value of export prices are cheaper relative to value of imports, consumers can afford less import for value of exports, living standards decrease.