Why Does the Gravity Model Work

question 17

Multiple Choice

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.

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Definitions:

Collateral Promise

A secondary promise to pay another person's debt only if that person fails to pay.

Statute of Frauds

A legal principle that requires certain types of contracts to be in writing and signed by the parties involved to be legally enforceable.

Oral Contract

An agreement between parties spoken out loud and not written down, yet still legally binding under certain conditions.

Memorandum of Agreement

A document outlining an agreement between parties before finalizing a more formal contract, detailing the preliminary terms and conditions.