Thursday, January 17, 2008

Terms of Trade

The study shows that from 2002 to mid-2007 the terms of trade rose by 22.3%. Real GDP, which excludes purchasing power changes from the terms of trade, rose 15.1%, an average of 2.6% per year. Real GDI, which incorporates the rising Canadian purchasing power, rose 23%, an average of 3.4% per year. The terms of trade improvement was responsible for roughly 8 percentage points, or one-third, of real income growth.

Source is today's Daily. On a personal note, I remember running across the terms of trade effect in introductory macro and being completely confused. I guess I've made some progress.

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