4.1.4 - Terms Of Trade Flashcards
What Is The Calculation For The TOT?
What Does The TOT Tell Us?
(2 Points)
~ Quantity level of export that need to be sold, in order to purchase a given level of imports.
~ Key to developing economies.
What Does An Improvement In The TOT Imply?
(2 Points)
~ Price of the basket of exports, can buy more in term of imports then what it could before.
~ Rise in export price or a fall in import prices.
What Does A Deterioration In The TOT Imply?
(2 Points)
~ Price of the basket if exports, can buy less imports then what it could have before.
~ Fall in export prices or a rise in import prices.
What Causes Changes In The TOT In The Short Run?
(3 Points)
~ Change in the demand and supply of exports and imports.
~ Relative inflation rates.
~ Exchange rate movements.
What Causes Changes In The TOT In The Long Run?
(2 Points)
~ Changing incomes.
~ Productivity and technology changes.
What Needs To Happen For An Improvement In The TOT To Be Beneficial?
(3 Points)
~ Increase in revenues, to buy in more imports.
~ Rise in relative inflation, increases prices, leads to an improvement in the TOT.
~ For higher export revenues to be generated, demand for exports need to price inelastic.
What Needs To Happen For A Deterioration In The TOT To Be Beneficial?
(3 Points)
~ Improvements in technology and productivity, means a country is more competitive.
~ Lower prices, but more quantity being sold.
~ Higher export revenues.
Describe The Prebisch-Singer Hypothesis
(5 Points)
~ States that there will be a long run decline in the TOT, for countries that depend on natural resource exports.
~ States that exports such as natural resources, are income inelastic.
~ Developing countries need to export more, to fund more imports then exports its selling.
~ Leads to a decline in wellbeing and living standards as a result.
~ They should use export revenues to diversify the economy and to break away from primary product dependency.
