Paper 2 · November 2010 · Exchange Rates and International Trade
The article states that Indian and Chinese economic growth 'dampened world inflation pressures, lowered global interest rates, and raised raw material prices', and that this 'helped to improve Africa's terms of trade'. Which of the following describes one of the effects reported in the article?
AIndian and Chinese growth raised global interest rates, increasing the cost of Africa's imported capital goods.
BIndian and Chinese growth reduced demand for African clothing and textile exports in international markets.
CIndian and Chinese growth reduced the price of raw materials, lowering the value of Africa's raw material exports.
DIndian and Chinese growth raised the price of raw materials, which form a large share of Africa's export earnings.
Explanation
The article explicitly says growth in India and China raised raw material prices. Since raw materials make up a large share of what African economies export, a higher price for them raises the export price index relative to the import price index, improving Africa's terms of trade. The article says interest rates fell (not rose) and says nothing about falling demand for African textiles.
Derived from ZIMSEC Economics Paper 2, November 2010, Section B Q1