If,over a period of a year,a country's import price index rises from 100 to 120 and its export price index rises from 100 to 110,its index for the terms of trade has

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Quizplus · Accepted Answer

The terms of trade index can be calculated as:

(TOT) = (Export Price Index) / (Import Price Index)

Initial TOT = 100/100 = 1

After a year, the new TOT will be:

(TOT) = (110) / (120) = 0.9167

Therefore, the index for the terms of trade has fallen to 91.67.

If,over a Period of a Year,a Country's Import Price Index