Multiple choice

The terms of trade is the name given to

  1. the excess of imports over exports

  2. unilateral trade agreements between countries

  3. the comparative advantage of one country over another in the production of certain goods

  4. the relationship between prices of imports and prices of exports.
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D Correct answer
Explanation

Terms of trade represents the relationship between export prices and import prices. It is calculated as the ratio of a country's export price index to import price index. This ratio shows how many units of imports can be purchased with one unit of exports, indicating a country's trade advantage or disadvantage.

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