An increase in a country's net commodity terms of trade will
A) not always guarantee positive changes in the country's economy.
B) always increase the country's economic welfare.
C) always increase the country's real income.
D) never increase the country's quantity of exports.
E) always increase the country's production of its import competing good.

Question

Quizplus · Accepted Answer

An increase in net commodity terms of trade means that the price of a country's exports increases relative to the price of its imports. While this can potentially increase the country's economic welfare and real income, it is not a guarantee as it depends on various factors such as the elasticity of demand for the country's exports, the level of competition in the global market, and the country's ability to efficiently utilize the increased revenue. Therefore, option A is the best choice as it acknowledges that the increase in net commodity terms of trade does not always guarantee positive changes in the country's economy.

An Increase in a Country's Net Commodity Terms of Trade