With other things unchanged, a rise in the average price of imports or a fall in the average 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 rise in the average price of imports or a fall in the average price of exports will lead to a decrease in the terms of trade, as a country will have to export more goods to purchase the same amount of imports. Thus, option B is the correct answer.

With Other Things Unchanged, a Rise in the Average Price