The gravity equation is used to predict:
A) the level of bilateral trade.
B) the level of intra-industry trade.
C) the weight of exports plus imports.
D) the level of inter-industry trade.

Question

Quizplus · Accepted Answer

The gravity equation is a widely used model in economics to predict the level of bilateral trade between two countries based on their economic sizes (measured in terms of GDP) and distance from each other. It suggests that the level of trade between two countries is directly proportional to their economic sizes and inversely proportional to their distance from each other. Therefore, option A (the level of bilateral trade) is the correct answer. Options B, C, and D are not directly predicted by the gravity equation.

The Gravity Equation Is Used to Predict