Which of these cases is an example of worsening terms of trade for a less developed country?
A)El Salvador signs a free-trade agreement with the United States that allows the United States to keep some tariffs on Salvadoran goods.
B)The International Monetary Fund (IMF)forces Indonesia to reduce its tariffs.
C)A group of foreign investors removes its money from Kenya,because the government does not grant the group special concessions.
D)The price of Chilean copper decreases while the price of Japanese cars increases.
E)The amount of oil Nigeria can export decreases while the number of imported cars increases.

Question

Quizplus · Accepted Answer

A worsening terms of trade occurs when a country's export prices fall relative to its import prices. In option D, Chile experiences a decrease in the price of its copper exports while the price of Japanese cars, which it imports, increases. This means Chile has to export more copper to afford the same number of cars, indicating a deterioration in its terms of trade.

Which of These Cases Is an Example of Worsening Terms