CA Foundation · Business Economics · International Trade
Country X's export price index rose by 10% and its import price index rose by 10%, while the quantity of its exports rose by 20% (base period = 100 for all). Its income terms of trade (Px/Pm x Qx, with base 100) in the later period are:
Income terms of trade are 120. The net barter terms are unchanged at 100 because both price indices rose equally by 10 percent, and the export quantity index of 120 then scales this to 120, showing greater import capacity from exports.
- A110
- B120Correct
- C100
- D132
Explanation
Income terms of trade = (Px/Pm) x Qx. Px/Pm = 110/110 = 1, so NBTT stays at 100. Multiplying by export quantity index 120/100 gives 100 x 1.20 = 120. Option D (132) wrongly multiplies the 10% price rise into the result as well. Option C ignores the rise in export volume.
Did you get it right without looking?
One question tells you little. A timed set on International Trade shows your real accuracy, how long you take and where you lose marks.
More International Trade questions
- The Heckscher-Ohlin theory explains the pattern of international trade mainly on the basis of differences in:
- Which of the following is the main effect of an import quota on the price of the imported good in the domestic market, compared with free tr…
- In the absence of trade, India can exchange 1 unit of wheat for 2 units of rice domestically. In the world market, 1 unit of wheat exchanges…
- Adam Smith's theory of international trade is based on the idea that a country should export a good when it:
- Which of the following will be recorded as a debit item in the current account of India's balance of payments?
- A persistent current account deficit in India's balance of payments is most directly financed by: