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TERMS OF TRADE - Coggle Diagram
TERMS OF TRADE
CAUSES of changes in the TOT
Changes in demand and supply of exports and imports
Price level
Exchange rate
IMPROVEMENT
Fewer exports have to be sold to buy any given quantity of imports
Increase in the price level
Example: increase in demand for exports
DETERIORATION
More exports have to be exchanged
Example: reduction in the exchange rate
Prebisch-Singer hypothesis
TOT tend to move against countries that produce primary products
IMPACTS
The effect depends on its cause
Increase in demand vs. increase in cost of production
Reduce deficit in the current account of the BoP
Elastic demand for exports and imports
How many imports is the country able to purchase with the revenue ir gains from the exports it sells.
