A fall in the price of imports or a rise in the price of exports will
A) improve the terms of trade.
B) worsen the terms of trade.
C) expand the production possibilities frontier.
D) contract the production possibilities frontier.

Question

Quizplus · Accepted Answer

A fall in the price of imports or a rise in the price of exports will improve the terms of trade, which means a country can get more imports for the same amount of exports, and this will result in a higher consumption level and a higher standard of living for the country. However, it does not directly affect the production possibilities frontier, which is determined by the available resources and technology in the economy.

A Fall in the Price of Imports or a Rise