MCQ for Economics Nov 2006 Paper 1 Question 21

[arvind0708]

21 A country’s terms of trade index currently stands at 120 (base year 2000).
Since 2000, the average price of its imports has increased by 25 %.
What has been the change in the average price the country has received for its exports over this
period?
A –10 % B +5 % C +45 % D +50 %

What calculation need to be done

 

[Xenon]

Terms of trade(TOT) = (index of export/index of import)%
In the current year, index of import is 125.
this gives, index of export = (120/100) x 125=150
Since base year, the price of export increased by 50%.
Ans: +50% , D

 

[Nobody]

Terms of trade(TOT) = (index of export/index of import)%
In the current year, index of import is 125.
this gives, index of export = (120/100) x 125=150
Since base year, the price of export increased by 50%.
Ans: +50% , D

please explain how the currecnt year of import is 125?...how is it from 120 t0 125

this is what i understand TOT for 2000 is 120= (120/1)
SINCE IMPORTS INCREASED BY 25%.. (120/25)??

 

[Xenon]

please explain how the currecnt year of import is 125?...how is it from 120 t0 125

this is what i understand TOT for 2000 is 120= (120/1)
SINCE IMPORTS INCREASED BY 25%.. (120/25)??

2000 is the base year. In the base year, the index of export and import are taken to be 100.
increase in price of imports will also increase the index of import, thus it is 125 in current year.

120 is the TOT for the CURRENT YEAR (not 2000 which is the base year)

 

[Nobody]

please explain how the currecnt year of import is 125?...how is it from 120 t0 125

this is what i understand TOT for 2000 is 120= (120/1)
SINCE IMPORTS INCREASED BY 25%.. (120/25)??

2000 is the base year. In the base year, the index of export and import are taken to be 100.
increase in price of imports will also increase the index of import, thus it is 125 in current year.

120 is the TOT for the CURRENT YEAR (not 2000 which is the base year)

thank you so much