Neco Model Questions Vol1 2022 Economics Question 49

Practice objective / multiple choice question 49 from the 2022 Neco Model Questions Vol1 Economics examination.

Neco Model Questions Vol1 2022 Economics Objective / Multiple Choice Medium Difficulty
Question 49 NECO_MODEL_QUESTIONS_VOL1 • 2022 • ECONOMICS • objective

Country X exports coffee and imports oil. In year 1, coffee is priced at \(\$5\) per kg and the country exports \(200{,}000\) kg; oil is priced at \(\$70\) per barrel and the country imports \(150{,}000\) barrels. In year 2, the coffee price rises by \(20\%\) while the oil price falls by \(10\%\), with quantities unchanged. (a) Compute the terms of trade index for each year and the percentage change, (b) calculate the trade balance for each year and indicate whether the balance improves or worsens.

Answer Options

A. ToT falls from 7.14 to 6.00 (≈-16% change); deficit rises from $9.5 million to $10.5 million - trade balance worsens
B. ToT rises from 7.14 to 9.52 (≈20% increase); deficit falls from $9.5 million to $8.25 million - trade balance worsens
Correct Answer C. ToT rises from 7.14 to 9.52 (≈33.3% increase); deficit falls from $9.5 million to $8.25 million - trade balance improves
D. ToT rises from 6.00 to 8.00 (≈33.3% increase); deficit falls from $10.0 million to $9.0 million - trade balance improves
Correct Answer
C
Correct Option:
ToT rises from 7.14 to 9.52 (≈33.3% increase); deficit falls from $9.5 million to $8.25 million - trade balance improves

About This Question

This is Neco Model Questions Vol1 2022 Economics Question 49. It is one of the objective questions from the 2022 Neco Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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