Question
2.Use the gravity model to answer question 2. Assume that theexponent of the distance variable is equal to 1.25 and that trade between countries A
2.Use the gravity model to answer question 2. Assume that theexponent of the distance variable is equal to 1.25 and that trade between countries A and B is equal to $100 billion.
a. Assume that country C is the same distance from country A as country B, but that country C's GDP is twice as large as B's GDP. What is the amount of trade between countries A and C?
b. Assume that country D has the same GDP as country B, but that country D is twice as far from country A as is country B What will be the amount of trade between countries A and D?
c. Suppose country E is both twice as large as B and twice as far away from A as B. Will trade between countries A and E be larger, smaller or the same as trade between countries A and B? Explain.
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