4.1.4 Terms of trade

What are terms of trade?

The relative prices of a country's exports compared to the cost of imported goods and services.

How can terms of trade be interpreted?

As the amount of imported goods and services that an economy can purchase per unit of exported goods and services.

What effect does a rise in the price index for exports have on terms of trade?

It improves the terms of trade, allowing a country to buy more imports for any given level of exports.

What global factor can cause changes in terms of trade?

Global prices for raw materials and components.

How do rising oil prices affect terms of trade?

They improve the terms of trade for oil exporters.

How do rising gas prices affect terms of trade?

They worsen the terms of trade for energy importers.

What is the impact of a stronger currency on terms of trade?

It lowers import prices, leading to improved terms of trade.

What happens to terms of trade when a currency weakens?

Import prices increase, leading to reduced terms of trade.

How do import tariffs affect terms of trade?

An import tariff increases the price of imports, worsening the terms of trade.

Why are terms of trade important for a country?

An improvement allows a country to obtain a greater quantity of imports for a given level of exports, enhancing living standards.

What potential negative effect can continuous improvement in terms of trade have?

It may encourage reliance on exports and neglect the development of domestic industries.

What can a decline in terms of trade lead to?

Reduced purchasing power for imports, potentially causing inflation and hampering economic growth.

What terms are used instead of surplus and deficit?

Improvement and deterioration.