Assuming a Two-Country World, Suppose That Country I's Income Elasticity

Multiple Choice

Assuming a two-country world, suppose that country I's income elasticity of demand for Imports is 1.2 and that country II's income elasticity of demand for imports is 0.9.Suppose also that, during 2010, country I's GDP grows by 5 percent and country II's GDP grows by 6 percent. Given these income elasticities of demand for imports and These growth rates and with other things equal, the terms of trade of country I with Country II during 2010 would __________.

A) improve
B) remain the same as before the growth in the two countries took place
C) deteriorate
D) improve, remain the same as before the growth in the two countries took place, orDeteriorate - cannot be determined without more information