terms of trade 4.1.4

Question 1

terms of trade

Answer 1

measures rate of exchange of one product for another when two countries trade
tells us the quantity of exports that need to be sold to purchase a given level of imports

Question 2

favourable movement in the terms of trade

Answer 2

ToT increases the country can buy more imports with the same level of exports

Question 3

unfavourable movement

Answer 3

ToT decrease when export prices fall or import prices rise (deterioration)

Question 4

how would you calculate ToT

Answer 4

average export price index/ average import price index x100

Question 5

factors influencing ToT

Answer 5

short run- DIES (changes in demand, inflation, exchange rates, changes in supply
long run-PIT (productivity, income, trade balance)

Question 6

improvement in ToT would … the current account on the balance of payments if PED is inelastic

Answer 6

improve

vice versa worsen

Question 7

why would a improvement in ToT lead to a fall in GDP and employment

Answer 7

if caused by a rise in export prices then exports fall
if caused by a fall in import prices then imports rise
PRICE doesn’t consider revenue