Given \( \frac{\text{index of export price}}{\text{index of import price}} \) X \( \frac{100}{1} \) The formula above can be used to determine the

Answer Details

The formula "index of export price/index of import price x 100" is used to determine the terms of trade. The terms of trade is the ratio at which a country can trade its exports for imports from other countries. The index of export prices is the average price that a country receives for its exports, while the index of import prices is the average price that a country pays for its imports. By dividing the index of export prices by the index of import prices and multiplying the result by 100, the terms of trade are expressed as a percentage. If the resulting percentage is greater than 100, it means that the country is able to purchase more imports for a given quantity of exports, which is a favorable position. On the other hand, if the resulting percentage is less than 100, it means that the country can purchase fewer imports for a given quantity of exports, which is an unfavorable position. Therefore, the formula "index of export price/index of import price x 100" is used to determine the terms of trade.