CA Foundation · Business Economics · International Trade
A country's net barter terms of trade are measured as the ratio of its export price index to its import price index, multiplied by 100. If export prices rise by 10% and import prices remain unchanged from the base year, the country's terms of trade will:
The terms of trade improve to 110. Net barter terms of trade equal the export price index divided by the import price index, times 100. With exports at 110 and imports at 100, the ratio is 110, showing each unit of exports now buys 10% more imports.
- AImprove to 110Correct
- BWorsen to 90
- CRemain at 100
- DImprove to 121
Explanation
Net barter terms of trade = (Px/Pm) x 100. With the base at 100, export index = 110 and import index = 100, so the ratio = 110/100 x 100 = 110. A value above 100 means an improvement, since each unit of exports buys more imports. Option 90 inverts the ratio.
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