Question

18) If, over a given period, the index of export prices rises by 10% and the index of import prices rises by 5%, the terms of trade are: 110 x 100 / 105 = 104.8 This means that the terms of trade have improved by 4.8%. When the terms of trade rise above 100 they are said to be improving and when they fall below 100 they are said to be worsening. If a country's terms of trade improve, it means that for every unit of exports sold it can buy less units of imported goods.

A.) True

B.) False

0.25 points19) Using the scenario in question 18, if a country's terms of trade improve, it means that for every unit of exports sold it can buy more units of imported goods.

A.) True

B.) False

0.25 points20) According to the Prebisch-Singer hypothesis, this fate has befallen many developing countries given the general decline in commodity prices in relation to the price of manufactured goods.

A.) True

B.) False

Answer 1

18) If, over a given period, the index of export prices rises by 10% and the index of import prices rises by 5%, the terms of trade are: 110 x 100 / 105 = 104.8 This means that the terms of trade have improved by 4.8%. When the terms of trade rise above 100 they are said to be improving and when they fall below 100 they are said to be worsening. If a country's terms of trade improve, it means that for every unit of exports sold it can buy less units of imported goods.

A.) True because the rise in export prices bring more money to country(greater foreign currency) and rise in import prices lead to outflow of a country currency to foreign. Hence, export is beneficial for a country compared to imports. When trade improves, exports are greater than imports, it is selling more abroad than buying from abroad. Every unit of export buys less units of import.

19) Using the scenario in question 18, if a country's terms of trade improve, it means that for every unit of exports sold it can buy more units of imported goods.

B.) False because import is less compared to exports and each unit of export sold buys less units of import

20) According to the Prebisch-Singer hypothesis, this fate has befallen many developing countries given the general decline in commodity prices in relation to the price of manufactured goods.

A.) True