What does the Terms of Trade (TOT) measure?

The Terms of Trade (TOT) is a crucial economic concept that measures the relative prices of a country's exports compared to its imports. Specifically, it reflects the rate at which one good or service can be exchanged for another between countries, essentially indicating how much imports a country can buy with a unit of its exports.

Selection B is correct because it directly refers to changes in the value of imports and exports over time. A favorable change in the TOT suggests that a country can buy more imports for a given quantity of exports, which often signifies improved economic conditions or stronger international competitiveness. Conversely, a decline in the TOT indicates that the value of a country's exports relative to its imports is decreasing, potentially leading to economic challenges.

The other options do not accurately capture the essence of what TOT measures. The relative movements in currency exchange rates pertain more to currency value fluctuations rather than trade balance aspects. The total volume of goods traded between nations refers to trade quantities but does not take into account their values, which is central to the definition of TOT. Finally, the focus on only bilateral trade agreements does not encompass the broader trade dynamics that TOT represents, as it is concerned with the aggregate value of all trade transactions rather than specific agreements between two trading partners.