13241671
Description
Flashcards by Elena Kriki, updated more than 1 year ago
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Created by Elena Kriki
over 6 years ago
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| Question | Answer |
| Terms of trade definition | An index number which shows the value of a country's average export price, relative to their average import price. |
| Terms of trade measures: | The volume of imports a country can receive per unit of exports |
| What is captured in a country's terms of trade? | The relative price of imports and exports may have an impact on competitiveness and on a country's living standards. |
| Formula for terms of trade | Terms of trade = Index of export prices / Index of import prices x100 |
| Example calculation with index price of x rising by 15% and index price of m rising by 20% +meaning of outcome of calculation: | TOT= (115/120)X100= 95.83 As TOT is below 100 it means that this country's TOT are worsening. |
| What would an improvement in a country's TOT mean? | The price of exports (x) would rise relatively faster than that of imports (m), as you'd need to sell less amount of x to purchase the same amount of m. |
| What does this suggest? | This suggests a possible improvement in living standards. |
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