The export price index for Japan is 132,while its import price index is 124.Assume an increase in export prices in Japan that result in a new price index of 144.The new terms of trade for Japan is __________,representing a(n)__________________ for Japan,and a(n)___________________ for their trade partner.
A)116,deterioration,improvement
B)116,improvement,deterioration
C)86,improvement,deterioration
D)86,deterioration,improvement

Question

Quizplus · Accepted Answer

The calculation for new terms of trade is (Export Price Index/New Import Price Index) * 100. 
Using the initial figures, we get (132/124) * 100 = 106.45. 
With the new export price index of 144, and assuming no change in import prices, the new terms of trade would be (144/124) * 100 = 116.13. 
This represents an improvement for Japan, as they can purchase more imports with the same amount of exports, but a deterioration for their trade partner, as they can purchase fewer Japanese exports with the same amount of imports.

The Export Price Index for Japan Is 132,while Its Import