A Level Economics (9708)•9708/11/M/J/19
Explanation
Terms of Trade Deterioration
Steps:
- Terms of trade (TOT) measure export prices relative to import prices: TOT = (Index of export prices / Index of import prices) × 100.
- TOT worsens if the ratio falls, meaning import prices rise faster than export prices.
- Evaluate options: A matches rising import prices exceeding export price rises.
- Confirm A aligns with TOT formula decline.
Why A is correct:
- TOT declines when import prices increase more than export prices, per the standard TOT index formula.
Why the others are wrong:
- B: Describes balance of payments deficit, not price-based TOT.
- C: Indicates trade deficit in value, unrelated to relative price changes.
- D: Reflects trade imbalance in quantity, ignoring price effects on TOT.
Final answer: A
Topic: Current account of the balance of payments
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