TOT Flashcards
1
Q
Formula
A
TOT = (weighed index of average X P)/(weighed index of average M P) * 100
2
Q
Why are the X and M P weighed when calculating TOT?
A
Weighed to give its relative importance of the G/S to the economy’s export/import (e.g. oil for protroleum exporting countries)
3
Q
Term used to describe an increase in TOT
A
Improvement: increase in the relative price of X
4
Q
Term used to describe a decrease in TOT
A
Deterioration: decrease in the relative P of X
5
Q
TOT of the base year
A
100
6
Q
Causes of changes in TOT in the SR
A
- Conditions of D/S (e.g. consumer tastes, supply shocks) –> price changes
- Changes in relative inflation rates
- Changes in ERs
