Terms of Trade Improvement via Relative Price Changes

Steps:

• Terms of trade (TOT) = (export price index / import price index) × 100; initial TOT = 100 implies equal initial indices.
• Target TOT = 110 requires export index / import index = 1.10.
• Compute new indices: export rise by x% gives (100 × 1 + x/100); import fall by y% gives (100 × 1 - y/100).
• Apply to options to find exact 1.10 ratio.

Why D is correct:

• Export index = 110, import index = 100; TOT = (110 / 100) × 100 = 110 exactly, per TOT formula.

Why the others are wrong:

• A: Export index = 95, import = 105; TOT ≈ 90.5 (worsens).
• B: Export = 105, import = 95; TOT ≈ 110.5 (exceeds 110).
• C: Export = 110, import = 105; TOT ≈ 104.8 (below 110).

Final answer: D