hot topic: terms of trade

Question 1

some countries will see an increase in AD but real GDP doesn’t increase why?

Answer 1

the economy is operating at full employment( they need to spend on importing other FOP in order to aid production)

Question 2

what are terms of trade

Answer 2

a ratio of a country’s export prices to import prices

Question 3

what is the index of export prices

Answer 3

average prices of commonly exported goods

Question 4

When the terms of trade increase we say that they have:

Answer 4

improved

Question 5

When the terms of trade decrease we say that they have:

Answer 5

deteriorated

Question 6

what are the factors that influence a country’s terms of trade

Answer 6

• raw material prices
• tariffs
• exchange rates
• inflation rates

Question 7

what is the effect on the terms of trade if a country’s inflation rates is higher than the country that they are trading with

Answer 7

• terms of trade will improve
• the index of export prices will be rising more than the index of imports prices

Question 8

what is the impact of terms of trade on standards of living

Answer 8

a deterioration will lead to decreased ability to buy foreign imports leading to a decreased standard of living

Question 9

what is the example used by up learn

Answer 9

trade between (December 2017)
- switzerland(0.8% inflation)
- UK (2.7% inflation)

Question 10

what is the impact of terms of trade on competitiveness

Answer 10

a deterioration in terms of trade(depreciation of the pound) will result in higher competitiveness for the UK(cheper exports)

Question 11

what are the effects of improvement in terms of trade

Answer 11

• living standards = improve
• competitiveness = decreases