Terms of Trade #1

A terms of trade index can be calculated as

• exports - imports x 100

• import price index/export price index x 100

• value of exports/value of imports x 100

• export price index/import price index x 100

A favourable movement in the terms of trade means that

• the terms of trade index must be greater than 100

• a country can import more with the same quantity of exports

• a country can export more goods for the same quantity of imports

• the current account deficit must improve

If import prices rise relative to export prices, then the terms of trade will

• improve

• decrease

• remain unchanged

• fall, but only if the exchange rate falls as well

An unfavourable movement in the terms of trade can occur if

• import prices rise less rapidly than export prices

• import prices rise more than export prices

• import prices fall while export prices rise

• import prices fall while export prices remain constant

A favourable movement in the ToT tends to raise the country's standard of living by

• creating a balance of trade surplus and stimulating export industries

• increasing the value of the currency and thereby stimulating exports

• increasing real GDP through an improved export performance

• increasing the volume of imports obtained from the sale of a given volume of exports

An important distinction between the ToT and the trade account is

• the ToT measure volumes whereas the trade account measures values

• the ToT measure prices whereas the trade account measures volumes

• the ToT measure prices whereas the trade account measures values

• the ToT measure values whereas the trade account measures prices

If the export price index rises faster than the import price index, this means

• the country is less competitive on world markets

• the country is more competitive on world markets

• the country must use a greater quantity of exports to obtain a given quantity of imports

• the country is able to obtain a greater quantity of imports with a given quantity of exports

From the table it can be concusses that over the period shown:

• export prices were rising, but by less than import prices

• less imports could be purchased with the same quantity of exports

• import prices were rising but by less than export prices

• there was a deterioration in the terms of trade

An unfavourable movement in the ToT will be the result of

• export prices remaining stable and import prices falling

• import prices rising faster than export prices

• import prices remaining stable and export prices rising

• Export prices and import prices rising by the same proportion

What is the likely impact if China's demand for minerals and energy increases?

• the ToT will deteriorate, but the balance of trade will improve

• the ToT and the balance of trade will both increase

• the ToT will improve, but the balance of trade will fall

• the ToT and the balance of trade will both decrease