What do the terms of trade measure ?
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Answer: D. Export prices compared to import prices
Explanation
The terms of trade measure the ratio of a country's export prices relative to its import prices. An improvement means export prices have risen relative to import prices, increasing national purchasing power. Favorable terms of trade allow a nation to import more goods for a given volume of exports. Terms of trade calculations divide the export price index by the import price index multiplied by 100. Changes in global commodity demand and exchange rates directly impact a country's terms of trade. Developing nations exporting raw materials often experience volatile terms of trade fluctuations.
Trading nations monitor their terms of trade to evaluate external trade gains and national income impacts. A deterioration in terms of trade requires exporting a larger volume of goods to pay for the same imports. Macroeconomic analysts include terms of trade assessments when evaluating external economic stability. Option A compares income levels between countries rather than measuring relative export and import prices. Option B evaluates gross domestic product comparisons instead of international trade price ratios. Option C measures physical export quantities rather than the relative price ratio of exports to imports.
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Answer: D. purchasing power parity theory
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Q6. What is the ratio of total tax paid to total income called ?
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