New Zealand Terms Of Trade Rise 4.9%

In this article it states that New Zealand has 4.9% increase in term of trade. As we learned in class we learned that Term of trade is simply the Price or monetary amount of exports divided by the monetary amount of imports.In this article it is stated that "Terms of trade is a measure of the purchasing power of New Zealand's exports abroad. An increase means that New Zealand can buy more imports for the same amount of exports". Now this here is a confusing statement because if that is true wouldn't term of trade go down if New Zealand used it in its next quarter to buy more imports. The other problem I see with the statement above are the words purchasing power. When it says purchasing power of New Zealand's exports abroad it seems in a way misleading to what it actually is which is just the price at what others have paid for their exports. The way one might actually interpret the statement might be as if New Zealand has more disposable income because their exports and that might not exactly be the case.

The was another statement that made wonder if terms of trade is a necessary number and that was "The terms of trade increase of 4.9 percent reflected higher dairy prices,". This statement indicates that there are other factors than the quantity of an export that effect terms of trade. The one factor that I thought of was exchange rate of one country to another. This factor could in deed increase term of trade for a country for exports since it would involve multiple countries and all their exchange. In fact this could be used in reverse and New Zealand could try to buy all of its imports where their currency is stronger, just like a consumer tending to buy where it is more convenient.

To summarize Terms of trade increased in New Zealand and the way the article use the term seemed to be misleading to what it actually means and an increase in the terms of trade was because of an increase in the price of dairy but that may not only be factor that effects the price of exports. If you have an opinion or feel I have mistated something please feel free to post a comment.