The Terms Of Trade

• The terms of trade is the ratio between export prices and import prices.
• If the terms of trade improve, it will increase demand for domestic products as they become relatively cheaper compared to foreign ones.
• A fall in the terms of trade means that the price of imports has risen relative to exports, so there are fewer goods available to buy with any given amount of money earned from selling exports.
• The deteriorating Terms of Trade refers to a situation where a country receives fewer imports for the same exports.
• A favorable change in the Terms of Trade means that a nation can afford more imports for the same amount of exports.
• The Terms of Trade refers to the relative price of exports to imports between two trading partners over time.
• A rise in the terms of trade means that exports are becoming relatively cheaper compared to imports, which can lead to an increase in demand for domestic goods and services.
• An improvement in the terms of trade leads to higher real income per head as it increases the purchasing power of consumers.
• If there is no change in output or employment, then GDP will not be affected by changes in the terms of trade.
• A fall in the price of exports relative to imports leads to an improvement in the terms of trade.
• An improvement in the terms of trade increases real income.
• Improvements in the terms of trade can lead to increased consumption and investment spending.
• An improvement in the terms of trade can lead to an increase in aggregate demand if consumers have more disposable income left over once they've paid for their essential imports.
• When the terms of trade worsens, the purchasing power of the economy decreases.
• An unfavorable change in the Terms of Trade means that a nation must sell more exports to purchase the same quantity of imports.
• Improved terms of trade may also encourage firms to invest in new industries or expand existing ones, leading to increased production and employment.
• An improvement in the terms of trade can lead to an increase in aggregate demand if consumers have more disposable income due to lower import costs.
• Improvements in the terms of trade may also result in increased investment by firms who see opportunities for growth through expanding production or entering new markets.
• An unfavorable change in the Terms of Trade occurs when the price of imported goods rises faster than the price of exported goods.
• However, improved terms of trade could also result in inflationary pressures due to higher import costs.
• An improvement in the terms of trade is when the price of exports rises faster than the price of imports, resulting in increased purchasing power for the exporting country.
• When the value of exports exceeds the value of imports, the balance of payments is positive.
• If the terms of trade improve, then the economy will be able to import more goods than previously possible at the same level of export earnings.
• When the terms of trade improve, the country's currency tends to appreciate against other currencies.
• When the terms of trade worsen, this is known as a deterioration in the terms of trade.
• Increased demand from abroad may result in increased production and employment if firms cannot meet the extra demand with existing capacity.
• When the terms of trade worsen, it indicates that the prices of imported goods have risen relative to the prices of exported goods, leading to decreased purchasing power for the importing country.
• Increasing productivity leads to higher wages, which increases consumer spending on domestically produced goods and services.
• Improvements in the terms of trade can also have positive effects on investment, government revenue, and balance of payments.
• Improvements in the terms of trade may cause inflation if they result from increased demand for domestically produced goods.