A country's import price index by 1995 was 50 and her index of export price was 70. Calculate the terms of trade?

Answer Details

The terms of trade is the ratio of the index of a country's export prices to the index of its import prices. In this case, the index of export price is 70 and the index of import price is 50. To calculate the terms of trade, we divide the index of export price by the index of import price and multiply by 100 to get a percentage: Terms of trade = (Index of export price / Index of import price) x 100 Terms of trade = (70/50) x 100 Terms of trade = 1.4 x 100 Terms of trade = 140% Therefore, the terms of trade for this country is 140%. This means that the country's export prices have increased relative to its import prices. In other words, the country can now buy more imports with the same amount of exports.