Learning objectives
Calculate the terms of trade as (index of export prices ÷ index of import prices) × 100 and interpret a rise or a fall
Explain the causes of changes in the terms of trade, such as relative inflation rates, exchange-rate movements, world commodity prices and shifts in world demand
Analyse the impact of an improvement or a deterioration in the terms of trade on living standards, the current account and employment
Evaluate why an improvement in the terms of trade need not help the current account, using the price elasticities of demand for exports and imports
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