Terms of Trade Calculation Steps:

• Obtain export price index (e.g., 110) and import price index (e.g., 100) from the table for year 2.
• Divide export price index by import price index: 110 / 100 = 1.10.
• Multiply the ratio by 100 to express as an index: 1.10 × 100 = 110. Why C is correct:
• Terms of trade is defined as (export price index / import price index) × 100, yielding 110.0. Why the others are wrong:
• A: Reverses the ratio (import/export), giving 90.9.
• B: Likely uses volume indexes instead of price indexes, resulting in 97.8.
• D: May incorporate a volume adjustment or miscalculation, leading to 111.0.

Final answer: C