Terms of Trade #2

If import prices rise while export prices either stay the same, fall or rise by less than import prices, what will happen to the ToT?

• they improve

• they deteriorate

• they remain unchanged

• it is impossible to say

If Australia experienced a significant fall in its terms of trade, which of the following (other things being equal) would be most likely to occur?

• a fall in the financial account surplus

• a rise in the goods and services balance

• an appreciation of The Australian Dollar

• a decline in Australian living standards

During the mining boom Australia's ToT increased due to

• rises in commodity prices

• an increase in the value of The Australian Dollar

• rises in the prices of imported manufactured goods

• an increase in Australia's interest rates

A rise in Australia's ToT will

• cause The Australian dollar to appreciate

• cause a decrease in Australia's export income

• result in a decrease in the trade balance

• lead to an increase in Australia's unemployment rate

What is the main implication of a fall in the ToT?

• an appreciation of The Australian dollar

• a rise in the current account balance

• stronger economic growth in Australia

• a fall in living standards

A possible disadvantage of a strong rise in the ToT is

• an increase in the current account deficit

• an increase in export prices which reduces demand for exports

• a rise in the exchange rate which reduces the competitiveness of domestic industries

• an increase in the trade surplus

For the economy in Year 3

• The current account has improved

• There has been an increase in the volume of trade

• The terms of trade has deteriorated

• The terms of trade have improved

Which of the following statements is correct for this hypothetical economy?

• In Year 2, import prices increased at a faster rate than export prices.

• The value of exports fell in Year 3.

• In Year 3, a given quantity of exports will buy a smaller quantity of imports.

• In Year 2, the value of exports from this economy decreased.

What is the most likely impact of a significant improvement in Australia’s terms of trade?

• More imports can only be purchased with an increased volume of exports

• A depreciation in the value of the Australian dollar

• A decrease in the capital and financial account surplus

• The current account deficit will increase

For this economy in Year 3 the

• total value of exports is greater than the total value of imports

• terms of trade have deteriorated from the previous year

• terms of trade have not changed from the previous year

• average price of exports is lower than the average price of imports