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JAMB Economics 1980 Question 6

Question 6

International Trade

The terms of trade are said to be favourable only if

  1. A.value of total exports equals value of total imports
  2. B.value of merchandise exports is greater than value of merchandise imports
  3. C.there are no balance of payments problems
  4. D.there is an increase in the value of a unit of export in terms of imports
  5. E.foreign exchange reserves do not change.
Show the answer and explanation

Answer: D (there is an increase in the value of a unit of export in terms of imports)

Explanation

Terms of trade improve when each unit of exports can buy more imports, i.e. export prices rise relative to import prices.