3.5. Terms of Trade

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4 Terms

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Terms of Trade

An index measuring how many imports a country can buy with a given quantity of exports.

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Terms of Trade Formula

Weighted Average of Export Prices, divided by Weighted Average of Import Prices, x100.

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Improvement

An increase in the terms of trade: a country can buy more imports with a given quantity of exports.

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Deterioration

A decrease in the terms of trade: a country can buy fewer imports with a given quantity of exports.