Question 8
Foreign TradeIn international trade, a country's terms of trade IMPROVE when:
I. Export prices rise faster than import prices
II. Import prices fall relative to export prices
III. The volume of exports increases
IV. The price index of exports increases relative to that of imports
- A.I, II and IV only
- B.I and III only
- C.II and III only
- D.All of the above
Show the answer and explanation
Answer: A (I, II and IV only)
Explanation
Terms of trade = export price index ÷ import price index × 100, so they improve when export prices rise relative to import prices; volume does not enter the ratio.