Multiple choice Help please (1 Viewer)

[ta26]

Could someone please explain why the answer is B and not C
Thank you

 

[swagmeister]

View attachment 32469 Could someone please explain why the answer is B and not C
Thank you

Answer sounds like C to me

HSC question? If you what year???

 

[swagmeister]

View attachment 32469 Could someone please explain why the answer is B and not C
Thank you

Had a more detailed look which pretty much reaffirmed my initial quick thoughts.

Year 2: ToT = 1.02 : 1
Year 3: ToT = 1.01 : 1

So the terms of trade have worsened, meaning it takes more exports to finance a given amount of exports. This eliminates D.

Now generally, although there is the J-curve effect in the short term, we look it at that because the terms of trade have worsened imports are relatively more expensive and thus the volume of them will decrease. That eliminates B.

And in terms of the overall shifts I definitely feel like C is the correct answer, although there is a case for A as well.

If this is a HSC question here is a nifty little trick - there can't be 2 correct answers, so because of that I guess they want us to infer they are speaking about the short term and because of that that is why in an exam situation you would choose B as the correct answer.

Still curious though... Is it a HSC question? Seems to ring a bell for me

 

[Ekman]

In my opinion, both B and C seem correct to me. A deterioration in the terms of trade means that more imports can be purchased for the same amount of exports, or less exports are purchased for the same amount of imports. So by going off this, you could say that there would be increased volume of imports but at the same time, there is decreased purchasing power of exports. Under exam conditions I would go with B because I feel like that is the better answer as terms of trade may indicate prices, but changes in terms of trade influence spending patterns and hence influence volumes, so B

 

[swagmeister]

In my opinion, both B and C seem correct to me. A deterioration in the terms of trade means that more imports can be purchased for the same amount of exports, or less exports are purchased for the same amount of imports. So by going off this, you could say that there would be increased volume of imports but at the same time, there is decreased purchasing power of exports. Under exam conditions I would go with B because I feel like that is the better answer as terms of trade may indicate prices, but changes in terms of trade influence spending patterns and hence influence volumes, so B

Wow! Either I've forgotten my knowledge of economics or you've said it the wrong way around haha

Deterioration in terms of trade means that our export prices have decreased relative to our import prices, and this means that LESS imports can be purchased for the same amount of exports because either 1) export prices have decreased so we have less money to purchase the imports with or 2) import prices have increased meaning we can buy less of them with the same amount of exports

correct me if I'm wrong someone

 

[Ekman]

Wow! Either I've forgotten my knowledge of economics or you've said it the wrong way around haha

Deterioration in terms of trade means that our export prices have decreased relative to our import prices, and this means that LESS imports can be purchased for the same amount of exports because either 1) export prices have decreased so we have less money to purchase the imports with or 2) import prices have increased meaning we can buy less of them with the same amount of exports

correct me if I'm wrong someone

Whoops, I keep on getting confused by them

 

[swagmeister]

Whoops, I keep on getting confused by them

No worries!

I was worried for a minute haha

 

[Gabriel Moussa]

I would say C

 

[Gabriel Moussa]

View attachment 32469 Could someone please explain why the answer is B and not C
Thank you

Maybe your answer is wrong

 

[turnerloos]

It's "C" you later hsc.

 

[godofindolence]

No worries!

I was worried for a minute haha

Does this mean that B is wrong?

The ToT decreases stems from a higher proportional increase in import prices compared to the export price. Therefore, if there was an increase in import prices, there would be a deterioration in BOGS in the short turn leading to deterioration in CA. However, how would the demand for imports have risen in the short term, instead, shouldn't it have decreased, especially over the long term. Unless... we are talking about a long term trend of rising imports stemming from increased revenue within export, due to growing export price index, allowing for more revenue, real wages and consumption of imported goods. But that seems kinda like grasping at straws a little, so is there something else that's influencing short term import demands?

 

[ta26]

Its from our half yearly so not sure where the teacher got it from.
I thought it was C cause B is looking at volume and TOT revolve around price