Terms of Trade Deterioration

Steps:

• Identify the index as terms of trade: (export price index / import price index) × 100, with 2013 as base 100.
• Observe the trend: index falls from 100 in 2013 to 97 in 2014 to 95 in 2015.
• Interpret the decline: lower index means exports purchase fewer imports over time.
• Conclude the change: terms of trade worsen as the relative export price decreases.

Why C is correct:

• Terms of trade deteriorate when the index falls below 100, as defined by the ratio of export to import prices, reducing purchasing power of exports for imports.

Why the others are wrong:

• A: Index decline shows relative export prices fell, not increased.
• B: Index measures relative export-import prices, not overall price level.
• D: No data on trade volumes provided.

Final answer: C