Chapter 23: Problem 2

The gross barter terms of trade can be written as $$ T_{N}=\frac{P_{X}}{P_{M}} $$

Short Answer

Expert verified

Answer: The gross barter terms of trade (T_N) is an economic metric used to understand the relative strength of a country's trading position in the global economy. It is calculated by dividing the price of exports (P_X) by the price of imports (P_M). This ratio indicates how many units of imports can be exchanged for one unit of exports, helping to assess whether a country receives more or less value from its exports relative to the cost of its imports.

Step by step solution

Introduction to Gross Barter Terms of Trade

The gross barter terms of trade ($$T_{N}$$) is an economic concept that represents the ratio of the price of a country's exports ($$P_{X}$$) to the price of its imports ($$P_{M}$$). It is a useful metric for understanding the relative strength of a country's trading position in the global economy.

Identify Prices of Exports and Imports

First, we need to identify the prices of the country's exports ($$P_{X}$$) and imports ($$P_{M}$$). These prices can be obtained from various sources such as government trade statistics, international organizations, or financial databases.

Understand the Ratio

The gross barter terms of trade formula is a simple ratio, which is calculated by dividing the price of exports ($$P_{X}$$) by the price of imports ($$P_{M}$$). This ratio indicates how many units of imports can be exchanged for one unit of exports.

Calculate the Gross Barter Terms of Trade

To calculate the gross barter terms of trade ($$T_{N}$$), we will use the formula provided: $$ T_{N}=\frac{P_{X}}{P_{M}} $$ Plug in the values of $$P_{X}$$ and $$P_{M}$$ into the formula and perform the division to obtain the value of $$T_{N}$$.

Interpret the Results

The resulting value of $$T_{N}$$ will give us an indication of the relative strength of the country's trading position. If $$T_{N} > 1$$, it means the country receives more value from its exports relative to the cost of its imports, which is a favourable trading situation. If $$T_{N} < 1$$, it means the country receives less value from its exports relative to the cost of its imports, which is an unfavourable trading situation. If $$T_{N} = 1$$, it means the country's exports and imports are balanced, resulting in equal exchange value.