Terms of Trade

What is the calculation for the terms of trade?

• (Index of import prices / index of export prices ) x 100

• (Index of export prices / index of import prices ) x 100

• (Index of import prices / index of export prices )

• (Index of export prices / index of import prices )

The country’s rate of inflation relative to other countries is a factor that influences a country’s terms of trade.

• True

• False

The country’s exchange rate is NOT a factor influencing a country’s terms of trade.

• True

• False

Tariffs can influence a country’s terms of trade.

• True

• False

Which would be an impact of tariffs on a country’s terms of trade?

• A decrease in the terms of trade

• An increase in the terms of trade

• No impact

If the pound were to devalue, what is the impact on the UK’s terms of trade?

• A decrease in the terms of trade

• An increase in the terms of trade

• No impact

Which is an effect of an increase in a country’s terms of trade?

• Higher living standards

• Decrease in living standards

• An increase in competitiveness of the country’s goods and services

• An increase in the current account of the balance of payments

Calculate the terms of trade in year 2 resulting from the following changes , assuming that the base year is year 1:

a 20% increase in the price of exports, and a 10% increase in the price of imports.

• 80 / 90 x 100

• 120 / 110 x 100

• 140 / 130 x 100

• 120 / 100 x 100