A Level Economics (9708)•9708/13/M/J/22
Explanation
Terms of Trade Rise from Higher Export Prices
Steps:
- Terms of trade (TOT) = (export price index / import price index) × 100; improvement means TOT increases.
- TOT rises if export prices increase relative to import prices.
- Evaluate options: only rising export prices directly boost the numerator.
- Select C as it matches the condition for TOT improvement.
Why C is correct:
- An increase in export prices raises the export price index, increasing the TOT ratio per the standard formula.
Why the others are wrong:
- A: Tariffs raise import costs domestically but do not alter international price indices for TOT.
- B: Import volume changes affect quantities, not the price indices used in TOT calculation.
- D: Export volume changes influence supply but not the price indices defining TOT.
Final answer: C
Topic: Current account of the balance of payments
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