Introduction

Terms of trade: Activities

1 The terms of trade and the trade balance are the same thing.

Incorrect. The statement is false. The terms of trade is the ratio between export prices and import prices and is calculated as $$ \Bigl( \frac {\text{Export prices (Px}} {\text{Import prices (Py}} \Bigl) \times 100 $$ The trade balance is the difference between the level of exports and the level of imports (value of exports – value of imports).

Correct. The statement is indeed false. The terms of trade is the ratio between export prices and import prices and is calculated as $$ \Bigl( \frac {\text{Export prices (Px}} {\text{Import prices (Py}} \Bigl) \times 100 $$ The trade balance is the difference between the level of exports and the level of imports (value of exports – value of imports).

2 The terms of trade is an indication of the volume of the quantity of imported goods that can be obtained per unit of goods exported.

Correct. The statement is indeed true.

The terms of trade is an indication of the volume of the quantity of imported goods that can be obtained per unit of goods exported.

Incorrect. The statement is true.

The terms of trade is an indication of the volume of the quantity of imported goods that can be obtained per unit of goods exported.

3 If the price of exports increases relative to the price of imports, the terms of trade …

Correct.

If the price of exports increases relative to the price of imports, it means a greater quantity of imports can be obtained per unit of goods exported.

Incorrect.

If the price of exports increases relative to the price of imports, it means a greater quantity of imports can be obtained per unit of goods exported.

Incorrect.

If the price of exports increases relative to the price of imports, it means a greater quantity of imports can be obtained per unit of goods exported.

4 If the price of imports increases relative to the price of exports, the terms of trade …

Incorrect. The terms of trade decreases.

If the price of imports increases relative to the price of exports, it means a smaller quantity of imports can be obtained per unit of goods exported.

Correct. The terms of trade decreases.

If the price of imports increases relative to the price of exports, it means a smaller quantity of imports can be obtained per unit of goods exported.

Incorrect. The terms of trade deceases.

If the price of imports increases relative to the price of exports, it means a smaller quantity of imports can be obtained per unit of goods exported.

5 A change in the terms of trade index from 120 to 132 means that …

Correct.

A change in the terms of trade from 120 to 132 is an increase in the terms of trade and means that a given volume of exports will purchase a greater quantity of imports than before and the country is better off.

Incorrect.

A change in the terms of trade from 120 to 132 is an increase in the terms of trade and means that a given volume of exports will purchase a greater quantity of imports than before and the country is better off.

Questions 6 to 9 are based on the following:

Complete the following table using the online statistical query tool of the SARB (https://www.resbank.co.za/Research/Statistics/Pages/OnlineDownloadFacility.aspx) or the SARB Quarterly Bulletin, June 2020:

Year Terms of trade excluding gold Terms of trade including gold
2011 105.2 106.3
2012 100.2 102
2013 99.6 100.6
2014 98.3 99
2015 101.1 101.8
2016 102.2 103.6
2017 108.2
2018 105.1
2019 106.9 108.2

6 The terms of trade excluding gold changed from 102,2 in 2016 to ____ in 2017.

Correct. The terms of trade increased from 102,2 in 2016 to 107,3 in 2017.

Year Terms of trade excluding gold Terms of trade including gold
2011 105.2 106.3
2012 100.2 102
2013 99.6 100.6
2014 98.3 99
2015 101.1 101.8
2016 102.2 103.6
2017 107.3 108.2
2018 105.1 105.4
2019 106.9 108.2

Incorrect. The terms of trade increased from 102,2 in 2016 to 107,3 in 2017.

Year Terms of trade excluding gold Terms of trade including gold
2011 105.2 106.3
2012 100.2 102
2013 99.6 100.6
2014 98.3 99
2015 101.1 101.8
2016 102.2 103.6
2017 107.3 108.2
2018 105.1 105.4
2019 106.9 108.2

7 The terms of trade including gold changed from 108,2 in 2017 to _____ in 2018.

Correct. It decreased from 108,2 to 105,4.

Year Terms of trade excluding gold Terms of trade including gold
2011 105.2 106.3
2012 100.2 102
2013 99.6 100.6
2014 98.3 99
2015 101.1 101.8
2016 102.2 103.6
2017 107.3 108.2
2018 105.1 105.4
2019 106.9 108.2

Incorrect. It decreased from 108,2 to 105,4.

Year Terms of trade excluding gold Terms of trade including gold
2011 105.2 106.3
2012 100.2 102
2013 99.6 100.6
2014 98.3 99
2015 101.1 101.8
2016 102.2 103.6
2017 107.3 108.2
2018 105.1 105.4
2019 106.9 108.2

8 The change in the terms of trade (including gold) from 2016 to 2017 might be the result of …

Correct.

The terms of trade increased from 103,6 to 108,2 and it is possibly due to an increase in the price of gold. An increase in the price of gold implies that the price of exports increases relative to the price imports.

Incorrect.

The terms of trade increased from 103,6 to 108,2 and it is possibly due to an increase in the price of gold. An increase in the price of gold implies that the price of exports increases relative to the price imports.

9 The change in the terms of trade (excluding gold) from 2011 to 2012 might be due to …

Incorrect.

The terms of trade decreased from 105,2 to 100,2 which implies that the price of exports decreased relative to the price of imports. Since South Africa is an exporter of commodities, a decrease in the world price of commodities will adversely affect the terms of trade.

Correct.

The terms of trade decreased from 105,2 to 100,2 which implies that the price of exports decreased relative to the price of imports. Since South Africa is an exporter of commodities, a decrease in the world price of commodities will adversely affect the terms of trade.