1.(10 marks) Using the simple gravity model of trade, answer the following questions. You may assume that A=3 for all parts.

a)(5 marks) Vietnam and Mexico are 3600 kilometers apart in distance. Vietnam's GDP is 1260 while Mexico's GDP is 2400. What is the predicted amount of trade that should occur between the two countries?

b)(5 marks) Suppose Germany and France are 3000 kilometers apart. If Germany's GDP is 3000, France's GDP is 1000, but the actual level of trade between the two countries is 5000, does the gravity model under or overpredict the amount of trade? Give one reason for why this might be the case.