The gravity equation uses a calculation to predict the level of bilateral trade based directly on ________ and inversely on ________.
A) wages; technology
B) size of the countries' GDP; the geographic distance between the countries
C) the percent of the countries' GDP in manufacturing; their level of tariffs
D) the growth rates of the countries' GDP; their openness to trade

Question

Quizplus · Accepted Answer

The gravity equation is used to predict bilateral trade based on the size of the countries' GDP (larger economies will trade more) and the geographic distance between the countries (greater distance will decrease the amount of trade). A and C are incorrect because they do not relate to the key factors of the gravity equation, and D is partially correct but does not include the crucial factor of geographic distance.

The Gravity Equation Uses a Calculation to Predict the Level