Economics - TOT

Question 1

Definition of TOT

Answer 1

TOT is a measure of the amount of imports which can be obtained with a given amount of exports

Question 2

Definition of TOT Index

Answer 2

An index which measures the movement of export prices relative to import prices

Question 3

Favourable TOT

Answer 3

Export prices rise relative to import prices

Question 4

Unfavourable TOT

Answer 4

Import prices rise relative to export prices

Question 5

5 ways a favourable TOT can occur

Answer 5

1. X prices increase, M prices decrease
2. X prices stay the same, M prices decrease
3. M prices fall faster than X prices
4. X prices increase faster than M prices
5. X prices rise and M prices stay the same

Question 6

5 ways an unfavourable TOT can occur

Answer 6

1. M prices increase, X prices decrease
2. M prices stay the same, X prices decrease
3. X prices fall faster than M prices
4. M prices increase faster than M prices
5. M prices rise and X prices stay the same

Question 7

Definition of XPI

Answer 7

Measures the movement of $ for a basket of exports in an economy

Question 8

Measurement of XPI

Answer 8

$ value of X (given) divided by $ value of X (base) x 100

Question 9

Definition of MPI

Answer 9

Measures the movement of $ for a basket of imports in an economy

Question 10

Measurement of MPI

Answer 10

$ value of M (given) divided by $ values of M (base) x 100

Question 11

Recent and contemporary trends in TOT

Answer 11

2010-2012 (rising TOT due to high WCP and growth in China during the tail end of the mining boom)
2012-2016 (As the mining boom comes to an end and China’s growth slowed to a lower rate, WCP fell, as did TOT)
2017-2019 (China began to buy more commodities to increase infrastructure which increase WCP and TOT)
2020 (WCP began to fall and therefore TOT is expected to fall)

Question 12

Changes in TOT impact the business cycle

Answer 12

1. a rising TOT will cause cyclical unemployment to decrease
2. a rising TOT will cause an increase in demand-pull inflation from PE to PE1
3. a rising TOT will increase growth due to the increase of demand from AD to AD1 which will cause supply to increase

Question 13

Growth

Answer 13

• rising TOT is a demand source of growth as the increase in real income increases spending in the economy where AD shifts to AD1
• the increase from AD causes an increase in output (or growth) from OE to OE1

Question 14

Unemployment

Answer 14

• decreases cyclical UE as the increase in spending which results in stock rundown
• increase output and therefore an increase in demand for resources including labour

Question 15

Inflation

Answer 15

• ## increase demand-pull inflation from PE to PE1, due to an increase spending causing greater pressure on $ to rise