terms of trade

Question 1

terms of trade

Answer 1

measure the price of a country’s exports relative to the price of its imports

Question 2

calculation

Answer 2

(index of export prices divided by index of import prices) x 100

Question 3

factors influencing a country’s terms of trade (4)

Answer 3

the country’s rate of inflation relative to other countries, the country’s productivity relative to that of other countries, tariffs, the country’s exchange rate

Question 4

effect of an increase in a country’s terms of trade (2)

Answer 4

higher living standards (can import more for a given quantity of exports), deterioration in the current account of the balance of payments (decline in the competitiveness of its goods and services) opposite for a decrease in terms of trade