Answer to Question #112295 in Macroeconomics for Raihan

Question

What does a reduction in terms of trade mean

Answer 1

A reduction in terms of trade means that the country's exports have become cheaper relative to its imports. The high price level of the its imports makes it hard for the country to satisfy its demand for imported products due to the low price level of its exports. This may be caused by a decline in the exchange rate, increase in the inflation levels and changes in the demand and supply of the country's commodities.This has an adverse effect on the economy of the country which may lead to lower living standards and higher poverty levels.