A rise in the price of imports or a fall in the price of exports will:
A) Improve the terms of trade
B) Worsen the terms of trade
C) Expand the production possibilities curve
D) Contract the production possibilities curve

Question

Quizplus · Accepted Answer

A rise in the price of imports means that a country will have to spend more money to purchase the same quantity of imports. Similarly, a fall in the price of exports means that a country will earn less money for the same quantity of exports. Both of these events will worsen the terms of trade, as a country is losing out on the value of its trade.

A Rise in the Price of Imports or a Fall