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AS – ECONOMICS (9708) MACRO CHAPTER 7 International Trade ANSWERS
AS / MACRO — [MCQ] — CHAPTER 7 AATIK TASNEEM | AS-LEVEL: ECONOMICS (9708) | 03041122845 1 TOPIC 1: TERMS OF TRADE Q1 A TOT improves when the average price of exports increase and average price of imports decrease. In this case it is option A where export prices are rising at a higher rate than the export prices. Meaning that the export price index would be greater than the import price index. [O/N 2008/Q22] Q2 C Terms of Trade (TOT) = !"#$% #'(%) *+ %),*"-. !"#$% #'(%) *+ #/,*"-. x 100 TOT = 012 031 x 100 = 120 [M/J 2009/Q22] Q3 C A country’s TOT improves when export prices rise or import prices fall. A high inflation rate will increase the export price hence improve TOT. Option A is irrelevant as it does not affect the price. Option B & C will worsen the TOT. As when exchange rate goes down export prices fall and import prices go up. Key Point: Terms of trade have “Export Price” and “Import Price” in the formulae. Hence the focus would be on the price not the quantity or any other variable. [O/N 2009/Q20] Q4 B The exchange rate and the volume of imports remained the same as the value of their index did not change. The volume of export index however fell, but we see that the balance of trade increased. This is only possible if the price of exports increased. Hence improving the terms of trade. [O/N 2009/Q26] Q5 B For this question we need to use to formulae for TOT and assume the Price of imports as an unknown variable. Terms of Trade (TOT) = !"#$% #'(%) *+ %),*"-. !"#$% #'(%) *+ #/,*"-. x 100 TOT = 032 4 x 100 = 150 Hence X is equal to 80, meaning the index dropped by 20% or -20% [M/J 2011/Q20] Q6 C TOT improves when the average price of exports increase and average price of imports decrease. [O/N 2011/Q21] Q7 C For this question we need to use to formulae for TOT and assume the Price of imports as an unknown variable. Terms of Trade (TOT) = !"#$% #'(%) *+ %),*"-. !"#$% #'(%) *+ #/,*"-. x 100 TOT = 012 4 x 100 = 120 Hence X is equal to 125, meaning the index increased by 25% or +25% [O/N 2012/Q21] Q8 C Just put the values in the TOT formulae: Terms of Trade (TOT) = !"#$% #'(%) *+ %),*"-. !"#$% #'(%) *+ #/,*"-. x 100 TOT = 012 031 x 100 = 120 [M/J 2013/Q22]
AS / MACRO — [MCQ] — CHAPTER 7 AATIK TASNEEM | AS-LEVEL: ECONOMICS (9708) | 03041122845 2 Q9 C TOT improves when the average price of exports increase and average price of imports decrease. [O/N 2013/Q22] Q10 D For this question we need to use to formulae for TOT and assume the Price of exports as an unknown variable. Terms of Trade (TOT) = !"#$% #'(%) *+ %),*"-. !"#$% #'(%) *+ #/,*"-. x 100 TOT = 5 031 x 100 = 120 Hence X is equal to 150, meaning the index increased by 50% or +50% [M/J 2016/Q24] Q11 C For this question every option must be individually evaluated: Country July 2013 July 2014 Brazil 119.7 116.5 China 101 98 Italy 100 102.7 Spain 100.9 102.8 Hence it improved only for Italy and Spain. [M/J 2016/Q24] Q12 B For this question we need to use to formulae for TOT and assume the Price of imports as an unknown variable. Terms of Trade (TOT) = !"#$% #'(%) *+ %),*"-. !"#$% #'(%) *+ #/,*"-. x 100 TOT = 032 5 x 100 = 150 Hence X is equal to 80, meaning the index decreased by 20% or –20% [M/J 2017/Q25] Q13 C For this question we need to read every statement and verify it. Terms of Trade (TOT) = !"#$% #'(%) *+ %),*"-. !"#$% #'(%) *+ #/,*"-. x 100 Year 1 = 100 Year 2 TOT = 032 002 x 100 = 109 Year 3 TOT = 063 030 x 100 = 109 The TOT increased from Year 1 to Year 2 however it stayed constant from Year 2 to Year 3. [M/J 2018/Q24] Q14 C The value of the TOT only increases if the price of exports increase or the price of imports fall. Hence option C is correct because when the currency appreciates it makes export expensive and imports cheaper. Option A is incorrect because a fall in export price will lead to a fall in TOT. Option B is incorrect because revenue is never considered to be part of the TOT. Option D is incorrect because a rise in the value of imports will reduce the TOT. Key Point: Terms of Trade (TOT) = !"#$% #'(%) *+ %),*"-. !"#$% #'(%) *+ #/,*"-. x 100 [O/N 2018/Q25]
AS / MACRO — [MCQ] — CHAPTER 7 AATIK TASNEEM | AS-LEVEL: ECONOMICS (9708) | 03041122845 3 Q15 B Terms of Trade (TOT) = !"#$% #'(%) *+ %),*"-. !"#$% #'(%) *+ #/,*"-. x 100 TOT Year 1 = 001 032 x 100 = 95.83 TOT Year 2 = 031 031 x 100 = 100 Hence it improved between 4% to 5% [O/N 2019/Q26]