MCQ 15 from 2003 HSC (1 Viewer)

[Zak Ambrose]

The table shows selected data for a nation.

year X price index M price index
1 100 110
2 110 112

what does the table indicate about this economy?

A - M volumes exceeded X volumes in both years.
B - the tot worsened between year 1 and year 2
C - the balance of trade improved marginally between year 1 and year 2
D - fewer X were required to pay for the same volume of M in year 2.


i swear blind it is B. but the answer is D. Why? i must be missing something completely obvious!

 

[FFC]

The table shows selected data for a nation.

year X price index M price index
1 100 110
2 110 112

what does the table indicate about this economy?

A - M volumes exceeded X volumes in both years.
B - the tot worsened between year 1 and year 2
C - the balance of trade improved marginally between year 1 and year 2
D - fewer X were required to pay for the same volume of M in year 2.


i swear blind it is B. but the answer is D. Why? i must be missing something completely obvious!

Hey there, it is D.

Terms of trade is an index which is calculated by the formula:

ToT = XPI/MPI

As such, for year 1, the ToT was 100/110 = 90.9
and for year 2, the ToT was 110/112 = 98.2

As such:

-the ToT have improved over the period, rather than worsened/deteriorated as B suggests.
-A and C are dependent on volumes and elasticities of demand and so cannot be certain
-when the ToT improve, fewer X are required to purchase the same volume of M.

As such, the answer is D.


Is that a good explanation?

 

[primalelement]

I concur with FFC

 

[Zak Ambrose]

omg im stupid! i was reading it as

year X price index M price index
1 110 110
2 110 112

too too silly

 

[FFC]

omg im stupid! i was reading it as

year X price index M price index
1 110 110
2 110 112

too too silly

MCQ is dangerous for that, can't show any working and so it is a straight right/wrong - no margin for error!!

But glad I could be of some assistance