Question

What do you mean by terms of trade? Describe its importance

Answer 1

terms of exports and is defined as the ratio of export prices to import prices. It can be interpreted as the amount of import goods an economy can purchase per unit of export goods.

Significance of the Terms of Trade Changes in the prices of the items we have to import Standard of Living Affects relative prices of capital inputs needed to sustain growth Prices of Imported Technology Export and import prices affect the value of trade flows Balance of Payments Improved terms of trade .

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