1. What is Terms of Trade?

The terms of trade (TOT) represent the ratio between a country's export prices and its import prices. Increasing terms of trade means a country can buy more imports for the same amount of exports, indicating improved economic welfare.

2. How Does the Calculator Work?

The calculator uses the percentage increase formula:

Where:

• New Terms — Current terms of trade index value
• Old Terms — Previous terms of trade index value

Explanation: The formula calculates the percentage change between two periods, showing how much the terms of trade have improved or deteriorated.

3. Importance of Terms of Trade Calculation

Details: Tracking terms of trade helps economists and policymakers understand a country's economic position in global trade. An increasing trend suggests greater purchasing power for imports, while a decreasing trend may indicate economic challenges.

4. Using the Calculator

Tips: Enter both old and new terms of trade index values. The old terms must be greater than zero for the calculation to work.

5. Frequently Asked Questions (FAQ)

Q1: What does increasing terms of trade mean?
A: Increasing terms of trade means a country's export prices are rising relative to import prices, allowing it to purchase more imports for the same quantity of exports.

Q2: What is a good terms of trade percentage increase?
A: Any positive percentage indicates improving terms of trade. The significance depends on the country's economic context and trade patterns.

Q3: Can terms of trade be negative?
A: The percentage change can be negative if new terms are worse than old terms, but index values themselves are always positive.

Q4: How often should terms of trade be calculated?
A: Typically calculated quarterly or annually to track trends over time.

Q5: What factors affect terms of trade?
A: Exchange rates, global demand for exports, commodity prices, and trade policies all influence terms of trade.