Why does the gravity model work?
A) Large economies became large because they were engaged in international trade.
B) Large economies have relatively large incomes, and hence spend more on government promotion of trade and investment.
C) Large economies have relatively larger areas which raises the probability that a productive activity will take place within the borders of that country.
D) Large economies tend to have large incomes and tend to spend more on imports.
E) Large economies tend to avoid trading with small economies.
D
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A fall in the user cost of capital
A) could occur as a result of a higher depreciation rate. B) would lead to more capital-intensive methods of production. C) would lead to less capital-intensive methods of production. D) could occur as a result of a decrease in the marginal product of capital.
A key assumption of the Keynesian model of macroeconomics is a fixed _____
a. interest rate b. price level c. exchange rate d. growth rate e. unemployment level