Neco Model Questions Vol1 2018 Economics Question 48

Practice objective / multiple choice question 48 from the 2018 Neco Model Questions Vol1 Economics examination.

Neco Model Questions Vol1 2018 Economics Objective / Multiple Choice Medium Difficulty
Question 48 NECO_MODEL_QUESTIONS_VOL1 • 2018 • ECONOMICS • objective

Country X exports 2 million tonnes of cocoa at a world price of $1,200 per tonne and imports 5 million tonnes of wheat at $300 per tonne. Suppose the world price of cocoa rises by 15% while the world price of wheat falls by 10%, and the quantities traded remain unchanged. (a) Compute the new terms of trade index and its percentage change, (b) calculate the percentage change in export earnings and import expenditure, and (c) determine the change in the trade balance (in billions of dollars) resulting from these price movements.

Answer Options

A. New ToT ≈ 511.1 (↑27.8 %). Export earnings ↑20 % to $3.00 bn, import expenditure ↓10 % to $1.35 bn. Trade‑balance surplus rises by $0.65 bn to $1.51 bn.
Correct Answer B. New ToT ≈ 511.1 (↑27.8 %). Export earnings ↑15 % to $2.76 bn, import expenditure ↓10 % to $1.35 bn. Trade‑balance surplus rises by $0.51 bn to $1.41 bn.
C. New ToT ≈ 511.1 (↑27.8 %). Export earnings ↑15 % to $2.76 bn, import expenditure ↓10 % to $1.50 bn. Trade‑balance surplus rises by $0.36 bn to $1.26 bn.
D. New ToT ≈ 460.0 (↑15 %). Export earnings ↑15 % to $2.76 bn, import expenditure ↓10 % to $1.35 bn. Trade‑balance surplus rises by $0.21 bn to $1.11 bn.
Correct Answer
B
Correct Option:
New ToT ≈ 511.1 (↑27.8 %). Export earnings ↑15 % to $2.76 bn, import expenditure ↓10 % to $1.35 bn. Trade‑balance surplus rises by $0.51 bn to $1.41 bn.

About This Question

This is Neco Model Questions Vol1 2018 Economics Question 48. It is one of the objective questions from the 2018 Neco Model Questions Vol1 Economics examination.

Difficulty level: Medium .

View More Neco Model Questions Vol1 2018 Economics Questions More Neco Model Questions Vol1 Practice Questions Back to Questions

Master the Exam!

You've seen a preview, but there are thousands more questions plus AI tutor to break down complex solutions.

Unlock Full Access Available for Android & Windows
Chat with Support