Assume in base year 1990,the index for the volume of exports is equal to 100,and we find that,for the 2004 fiscal year,the US price index for exports has fallen 6 percent,the price index for imports has risen by 9 percent,and the index for the volume of exports is 108 for 2004.What is the value of the U.S.income terms of trade?
A)93.1
B)89.7
C)88.6
D)63.4

Question

Quizplus · Accepted Answer

Income terms of trade = (Export price index / Import price index) x Volume index
For the 2004 fiscal year, the export price index has fallen 6% and the import price index has risen by 9%. This means that the export price index is now 94 (100 - 6% of 100) and the import price index is 109 (100 + 9% of 100).
The volume index is given as 108 for 2004.
So, income terms of trade = (94 / 109) x 108 = 93.1
Therefore, the best choice is A) 93.1.

Assume in Base Year 1990,the Index for the Volume of Exports