Suppose that the U.S. price index for its imports rose from 100 to 120 from 2010 to 2011 and the price index for its exports remained unchanged. Which of the following statements is correct?
A) The U.S. terms of trade worsened between 2010 and 2011.
B) The U.S. terms of trade improved between 2010 and 2011.
C) The U.S. terms of trade improved in 2010 and worsened in 2011.
D) There was no change in the U.S. terms of trade between 2010 and 2011.

Question

Quizplus · Accepted Answer

The terms of trade refer to the ratio of a country's export prices to its import prices. If the U.S. price index for imports rose while the price index for exports remained the same, then the ratio of export prices to import prices has decreased, indicating a worsened terms of trade. Therefore, choice A is correct.

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