Examkin

Question

Difficulty: MediumTerms of Trade: Concepts, Calculation, and Determinants

In international economics, terms of trade can be expressed through various metrics depending on whether price levels, physical quantities, or factor productivities are being evaluated. Match each Terms of Trade concept on the left with its correct mathematical representation on the right.

  • Gross Barter Terms of Trade(QmQx)×100\left(\frac{Q_m}{Q_x}\right) \times 100, representing the ratio of the physical quantity index of imports to exports.
  • Income Terms of Trade(PxPm)×Qx\left(\frac{P_x}{P_m}\right) \times Q_x, representing a country's capacity to import out of export earnings.
  • Single Factoral Terms of Trade(PxPm)×Zx\left(\frac{P_x}{P_m}\right) \times Z_x, adjusting commodity terms of trade for productivity gains in domestic export production.
  • Double Factoral Terms of Trade(PxPm)×(ZxZm)\left(\frac{P_x}{P_m}\right) \times \left(\frac{Z_x}{Z_m}\right), adjusting commodity terms of trade for relative productivity in both export and import sectors.

Answer

Gross Barter Terms of Trade matches (QmQx)×100\left(\frac{Q_m}{Q_x}\right) \times 100; Income Terms of Trade matches (PxPm)×Qx\left(\frac{P_x}{P_m}\right) \times Q_x; Single Factoral Terms of Trade matches (PxPm)×Zx\left(\frac{P_x}{P_m}\right) \times Z_x; Double Factoral Terms of Trade matches (PxPm)×(ZxZm)\left(\frac{P_x}{P_m}\right) \times \left(\frac{Z_x}{Z_m}\right).
Each Terms of Trade concept correctly aligns with its economic formula: Gross Barter measures physical volume ratios, Income Terms of Trade calculates total import purchasing capacity based on export revenue, Single Factoral accounts for domestic export productivity improvements, and Double Factoral accounts for relative productivity between domestic and foreign trading sectors.

Step-by-Step Solution

1
Analyze the scope and variables of each Terms of Trade metric.
Gross Barter uses physical volume indices (Qm,QxQ_m, Q_x); Income Terms of Trade measures total import capacity using export volume (QxQ_x); Single Factoral adjusts for export productivity (ZxZ_x); Double Factoral adjusts for both export (ZxZ_x) and import (ZmZ_m) productivities.
Different concepts refine commodity terms of trade to account for volume changes and factor productivity changes.
2
Match each economic concept with its precise algebraic formula.
Gross Barter →(QmQx)×100\rightarrow \left(\frac{Q_m}{Q_x}\right) \times 100, Income Terms of Trade →(PxPm)×Qx\rightarrow \left(\frac{P_x}{P_m}\right) \times Q_x, Single Factoral →(PxPm)×Zx\rightarrow \left(\frac{P_x}{P_m}\right) \times Z_x, Double Factoral →(PxPm)×(ZxZm)\rightarrow \left(\frac{P_x}{P_m}\right) \times \left(\frac{Z_x}{Z_m}\right).
These formulas directly correspond to the classical definitions of international trade metrics.

Key Concept

Classification and Formulation of Terms of Trade Metrics
Rate this question

Topics

Terms of Trade: Concepts, Calculation, and Determinants

More questions from this topic