kaupmáttarjafnvægi

Kaupmáttarjafnvægi, often translated as terms of trade, refers to the ratio between a country's export prices and its import prices. It is calculated by dividing the index of export prices by the index of import prices and multiplying by 100. An increase in the terms of trade signifies that a country can buy more imports for the same amount of exports, indicating an improvement in its economic standing. Conversely, a decrease suggests that a country's exports are worth less relative to its imports.

This economic indicator is crucial for understanding a nation's purchasing power on the international market. For example, if a country's main exports are commodities like oil or agricultural products, fluctuations in global commodity prices can significantly impact its terms of trade. Similarly, changes in the prices of manufactured goods or technology that a country imports will also affect this ratio.

A favorable terms of trade can lead to a higher standard of living as a country can acquire more goods and services with its export earnings. However, over-reliance on a few export commodities can make a country vulnerable to external price shocks. Policymakers often monitor kaupmáttarjafnvægi to assess the health of their trade relationships and make informed decisions regarding economic policy, trade agreements, and currency valuation.