4.1.4 Terms of Trade

True or false? The Terms of Trade looks at the relationship between the price received for exports and the amount of imports a country is able to buy with that money.

• True

• False

The Terms of Trade is calculated as follows:

• ratio of the import price index to the export price index

• ratio of the export price index to the import price index

• ratio of the export price index to the import price index * 100

• ratio of the import price index to the export price index * 100

Terms of Trade improves when the relative export prices ...

• fall i.e. compared to the price of inputs.

• rise i.e. compared to the price of inputs.

• fall i.e. compared to the price of imports.

• rise i.e. compared to the price of imports.

A rise in export prices means...

• more imports can be purchased for a given level of exports

• fewer imports can be purchased for a given level of exports

• more imports will be purchased

• fewer imports will be purchased

Which of the following can be deduced from the chart over the period 2000-2018?

• Export prices and import prices have fallen at the same rate

• Import prices have risen at a faster rate than export prices

• Export prices have risen at a faster rate than import prices

• Import prices have fallen relative to export prices

• The value of Afghanistan's imports have risen relative to the value of its exports

• The average price of Afghanistan's exports have fallen relative to the average price of its imports

• Afghanistan is likely to experience an improvement in its living standards

If the price of imports falls then it will lead to an improvement in the Terms of Trade but a worsening of the current account as it could lead to a rise in D for imports if ...

• YED >-1.

• PES > 1.

• PED <-1.

• PED >-1.

If the price of exports rises, ceteris paribus, then it will lead to an improvement in the Terms of Trade but a worsening of the current account as it could lead to a fall in D for exports if ...

• PED <-1

• YED >-1

• PED >-1

• PES > 1

Which of the following factors will NOT directly affect a country's Terms of Trade?

• Unemployment rates

• Exchange rates

• Inflation rates

• Productivity

The Prebisch-Singer Hypothesis states that...

• over the long run the price of primary commodities declines in proportion to manufactured goods

• over the short run the price of primary commodities rises in proportion to manufactured goods

• over the long run the price of primary commodities rises in proportion to manufactured goods

• over the short run the price of primary commodities declines in proportion to manufactured goods