Terms of Trade

Question 1

Terms of Trade

Answer 1

exports/imports * 100

• An index which measures the relative movements in the price of exports and imports

Question 2

Primary Products

Answer 2

• Wheat, rice, timber wool etc moving downwards and many nations rely on exporting to receive income

Question 3

Durable Consumer Goods

Answer 3

• Increasing due to technological innovation
• TV’S, washing machines, cars,
• Many rely on importing these products

Question 4

Export Price Index

Answer 4

Change in price of exports over time

eg. year 1 is 600, year 2 is 630.

XPI for year 2 = 630/600 *100 = 105, 5% increase

Question 5

Import Price Index

Answer 5

Change in price of imports over time

Question 6

Import Price Index

Answer 6

Change in price of imports over time

Question 7

Increase in Terms of Trade

Answer 7

• Export prices increase more than import prices

- Export prices increase and import prices decrease

Question 8

A strong terms of trade will lead to..

Answer 8

• Appreciation of exchange rate
• > due to demand for Australian dollar, boosting value
• > Good for consumers, bad for exporters not in mining
• Has an expansionary effect on economy
• > can lead to inflation

-> Can cause reserve back to raise interest rates to =/= inflation

Question 9

A strong terms of trade will lead to..

Answer 9

• Appreciation of exchange rate
• > due to demand for Australian dollar, boosting value
• > Good for consumers, bad for exporters not in mining
• Has an expansionary effect on economy
• > can lead to inflation

-> Can cause reserve back to raise interest rates to =/= inflation

Question 10

Terms of Trade & Trade Balance

Answer 10

• Close link
• > Terms of trade measures changes in the prices of exports and imports
• > Trade account measures changes in the value of exports and imports
• Has a direct relationship