Deck 9: Regional Economic Integration

Question 1

As with free trade in general, regional economic integration creates gain for consumers, but it can be challenging for some producers.

Answer 1

True
Explanation: By regional economic integration we mean agreements among countries in a geographic region to reduce, and ultimately remove, tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other. Thus, as with free trade in general, regional economic integration creates gain for consumers, but it can be challenging for some producers.

Question 2

A common market has no barriers to trade among member countries, includes a common external trade policy, and allows factors of production to move freely among members.

Answer 2

True
Explanation: A common market has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members. Labor and capital are free to move because there are no restrictions on immigration, emigration, or cross-border flows of capital between member countries.

Question 3

Trade creation occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area.

Answer 3

False
Explanation: Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area. It may also occur when higher-cost external producers are replaced by lower-cost external producers within the free trade area.

Question 4

In theory, the World Trade Organization rules should ensure that a free trade agreement results in trade diversion.

Question 5

In an optimal currency area, similarities in the underlying structure of economic activity make it feasible to adopt a single currency and use a single exchange rate as an instrument of macroeconomic policy.

Question 6

The emphasis of the European Free Trade Association has been on free trade in consumer goods.

Question 7

Some economists have pointed out that the benefits of regional integration are determined by the extent of trade diversion, as opposed to trade creation.

Question 8

In a customs union, a common currency is adopted.

Question 9

In a free trade area, all barriers to the trade of goods and services among member countries are removed and a common external trade policy is adopted.

Question 10

The European Parliament, which meets in Strasbourg, France, is primarily a legislative rather than consultative body.

Question 11

In terms of regional economic integration, linking neighboring economies and making them increasingly dependent on each other create incentives for political cooperation between the neighboring states.

Question 12

Economic theories suggest that free trade and investment is a positive-sum game, in which all participating countries stand to gain.

Question 13

A political union addresses the issue of how to make a coordinating bureaucracy accountable to the citizens of member nations of an economic union.

Question 14

The European Commission is the ultimate controlling authority within the European Union because draft legislation from the commission can become EU law only if the council agrees.

Question 15

A disadvantage of the euro is that the development of a pan-European, euro-denominated capital market will decrease the range of investment options open to both individuals and institutions.

Question 16

The European Union is by far more significant than the European Free Trade Association (EFTA), in terms of membership as well as economic and political influence in the world economy.

Question 17

By adopting the euro, the European Union has created the second most widely traded currency in the world after that of the U.S. dollar.

Question 18

The European Parliament is responsible for proposing European Union (EU) legislation, implementing it, and monitoring compliance with EU laws by member-states.

Question 19

The European Council is composed of one representative from the government of each member-state but the membership varies depending on the topic being discussed.

Question 20

With the signing of the Treaty of Rome in 1957, the European Free Trade Association was established.

Question 21

The Andean Community now operates as a customs union.

Question 22

Which of the following is true with regard to regional economic integration?

A)Agreements designed to promote freer trade within regions have failed to produce gains from trade for all member countries.
B)World Trade Organization members are not required to notify the organization of any regional trade agreements in which they participate.
C)Regional economic integration is good for consumers because it lowers prices.
D)Regional economic integration benefits producers because they do not have to adapt to a more competitive environment.
E)The movement toward regional economic integration has been most successful in Asia.

Question 23

Which of the following is a feature of a common market?

A)Absence of a common external trade policy with regard to nonmembers
B)Free movement of factors of production between member nations
C)Establishment of barriers to the free flow of goods between member nations
D)Lack of administrative machinery to oversee trade relations with nonmembers
E)Mandatory use of a common currency among member nations

Question 24

The Andean Pact was largely based on the European Union model and was highly successful at achieving its stated goals.

Question 25

Which of the following are the most popular form of regional economic integration, accounting for almost 90 percent of regional agreements?

A)Licensing agreements
B)Economic unions
C)Common markets
D)Free trade agreements
E)Political unions

Question 26

Which of the following refers to agreements among countries in a geographic region to reduce and ultimately remove tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other?

A)Regional economic integration
B)Cross-cultural integration
C)Zoning agreement
D)Administrative trade policies
E)Balance-of-trade equilibrium

Question 27

The stated aim of the Asia-Pacific Economic Cooperation is to increase multilateral cooperation in view of the economic rise of the Pacific nations and the growing interdependence within the region.

Question 28

Which of the following is true of the European Free Trade Association (EFTA)?

A)The emphasis of EFTA has been on free trade in agricultural goods.
B)Industrial goods were left out of the trade arrangement, each member being allowed to determine its own level of support.
C)Members cannot determine the level of protection applied to goods coming from outside EFTA.
D)It was founded by those western European countries that initially decided not to be part of the European Community.
E)It imposes a common tariff, of 5 to 20 percent, on products imported from outside.

Question 29

The creation of a single market through regional economic integration offers significant opportunities because markets that were formerly protected from foreign competition are increasingly open.

Question 30

Which of the following has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members?

A)Command economy
B)Customs union
C)Common market
D)Efficient market
E)Free trade area

Question 31

Which of the following is true with regard to a free trade area?

A)Factors of production are allowed to move freely between member nations.
B)Each member country is allowed to determine its own trade policies with regard to nonmembers.
C)Member nations are required to have a common currency.
D)Member nations are required to have a common monetary and fiscal policy.
E)Member nations are required to have a central political apparatus that coordinates economic, social, and foreign policy.

Question 32

Since its establishment in January 1, 1999, the euro has steadily appreciated against the U.S. dollar, reaffirming the ability of the European Central Bank to manage monetary policy within the euro zone.

Question 33

Which of the following is defined as a group of countries committed to removing all barriers to the free flow of goods and services between each other, but pursuing independent external trade policies?

A)Free trade area
B)Command economy
C)Efficient market
D)Foreign exchange market
E)Location economy

Question 34

Three countries enter into an agreement to remove all tariffs and trade barriers between them. They decide on a common trade policy with regard to nonmembers. Faced with political backlash, the countries stop short of allowing mobility of factors of production such as labor and capital. Which of the following levels of economic integration best describes this arrangement?

A)Political union
B)Customs union
C)Common market
D)Economic union
E)Monetary union

Question 35

Where has the movement toward regional economic integration been most successful?

A)Africa
B)South America
C)North America
D)Europe
E)Asia

Question 36

An advantage of the emergence of single markets is that the lowering of barriers to trade and investment among countries has led to decreased price competition throughout the European Union.

Question 37

A major stumbling block in the creation of the Free Trade Area of the Americas is that the United States wants its southern neighbors to agree to higher manufacturing tariffs, which they are not eager to embrace.

Question 38

The basic objective of the Association of Southeast Asian Nations is to foster freer trade among member countries and to achieve cooperation in their industrial policies.

Question 39

Since the number of trade groups in the African continent is impressive, progress toward the establishment of meaningful trade blocs has been fast.

Question 40

Which of the following is the economic level corresponding to the least integration?

A)A free trade area
B)A customs union
C)A common market
D)An economic union
E)A political union

Question 41

Which of the following is true with regard to an economic union?

A)There are restrictions on immigration, emigration, or cross-border flow of capital among member countries.
B)It entails less economic integration and cooperation than a common market.
C)It involves the free flow of products and factors of production among member countries.
D)It is defined as a central political apparatus that coordinates the economic, social, and foreign policy of the member-states.
E)It does not adopt a common external trade policy.

Question 42

The country of Argonia and the country of Berylia imposed tariffs on imports from all countries. They set up a free trade area, removing all trade barriers between themselves but maintaining tariffs on imports from the rest of the world. Argonia now begins to import sugar from Berylia. Previously, Argonia was indigenously producing sugar at a higher cost. Thus, Argonia benefits from this transaction. This is known as:

A)trade creation
B)strategic pricing
C)synergy
D)trade diversion
E)protectionism

Question 43

The European Community was established with the signing in 1957 of the Treaty of:

A)Paris.
B)Brussels.
C)Switzerland.
D)Rome.
E)Lisbon.

Question 44

Which of the following supports the economic case for regional economic integration?

A)International institutions such as the World Trade Organization have been moving the world away from a free trade regime.
B)The greater the number of countries involved in a free trade agreement, the fewer the perspectives that must be reconciled.
C)Coordination and policy harmonization problems are largely a function of the number of countries that seek agreement.
D)It is difficult to establish a free trade and investment regime among a limited number of adjacent countries as compared to the world community.
E)Since most governments do not intervene, unrestricted free trade and FDI have become a reality.

Question 45

Which of the following are the two impediments to regional economic integration?

A)Labor activism and political ideologies
B)Immigration and political ideologies
C)Costs and national sovereignty
D)Political will and popular support
E)Political ideologies and international policies

Question 46

A regional free trade agreement will benefit the world only if:

A)it raises the standard of living in one of the member countries.
B)the amount of trade it creates exceeds the amount it diverts.
C)the currencies of the nations involved appreciate.
D)the balance-of-trade situation remains stable in the region.
E)it creates trade surplus for one of the countries involved.

Question 47

Which of the following is true of the political case for regional economic integration?

A)Linking neighboring economies increases the potential for violent conflict.
B)Free trade stimulates economic growth, which creates dynamic gains from trade.
C)Making neighboring economies increasingly dependent on each other fails to create incentives for political cooperation.
D)Countries can enhance their political weight in the world by grouping their economies.
E)Those who have sought a united Europe have always had a desire to make another war in Europe imminent.

Question 48

Which of the following levels of economic integration involves the use of a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy?

A)Free trade area
B)Customs union
C)Common market
D)Economic union
E)Command economy

Question 49

Establishment of which of the following would hold a coordinating bureaucracy accountable to the citizens of member nations?

A)A political union
B)A customs union
C)An exclusive economic zone
D)A free trade agreement
E)A common market

Question 50

The European Community became the European Union in 1993 following the ratification of the:

A)Maastricht Treaty.
B)Warsaw Pact.
C)Treaty of Rome.
D)Single European Act.
E)Lisbon Treaty.

Question 51

Which of the following is true of the Treaty of Rome?

A)It obliged all European Union members to adopt the euro.
B)It committed the European Community to establish common policies in agriculture and transportation.
C)It called for the establishment of internal trade barriers.
D)It allowed members to determine the level of protection applied to goods coming from outside.
E)It called for the abolition of a common external tariff.

Question 52

Which of the following is defined as a central political apparatus that coordinates the economic, social, and foreign policy of the member-states?

A)Free trade area
B)Political union
C)Economic union
D)Common market
E)Command economy

Question 53

Which of the following is an example of concerns over national sovereignty acting as an impediment to regional economic integration?

A)The Organization of the Petroleum Exporting Countries regulating the supply of petroleum as a cartel
B)The Asia-Pacific Economic Cooperation failing to establish itself as a regional arrangement
C)Admission of Eastern European nations into the European Union
D)Great Britain refusing to adopt the common currency of the European Union, the euro
E)The rise of the World Trade Organization

Question 54

Which of the following is a major consideration that underlay the establishment of the European Community?

A)The pressing need to have a common currency that would make trade between European and non-European countries easier
B)The need for a united Europe to deal with the United States and the politically alien Soviet Union
C)The economic lessons from the Great Depression that hit the United States in the 1920s
D)The success of the European Free Trade Association formed by Western European countries in 1960
E)The rise of communism in Europe in the 1960s

Question 55

Which of the following entails a closer economic integration and cooperation than a common market?

A)Command economy
B)Customs union
C)Efficient market
D)Free trade area
E)Economic union

Question 56

Suppose the country of Ceria and Lithinia imposed tariffs on imports from all countries, and then they set up a free trade area, scrapping all trade barriers between themselves but maintaining tariffs on imports from the rest of the world. Now, Ceria begins to import sugar from Lithinia. However, Ceria had previously been importing sugar from another country, Cadnia, which produced sugar more cheaply than Ceria or Lithinia. This is known as:

A)trade creation
B)strategic pricing
C)synergy
D)trade diversion
E)protectionism

Question 57

Which of the following is a factor that resulted in the establishment of the European Union (EU)?

A)The spectacular success of the North American Free Trade Agreement (NAFTA)
B)The trade impasse following the oil crisis in the 1970s that occurred due to collusion among oil producing nations
C)The devastation of Western Europe during two world wars and the desire for a lasting peace
D)The emergence of Japan as an economic and industrial superpower despite the nuclear holocaust
E)The rise of communism in Europe

Question 58

Which of the following occurs when high-cost domestic producers are replaced by low-cost producers within a free trade area?

A)Value creation
B)Strategic pricing
C)Trade creation
D)Trade diversion
E)Economic exposure

Question 59

Which of the following are significant trade blocs in Europe?

A)The European Union and the European Free Trade Association
B)The European Federation and the European Trade Block
C)The European Commission and the COMINTERN
D)The European Federation and the European Trade Association
E)The European Economic Community and the European Federation

Question 60

Which of the following occurs when lower-cost external suppliers are replaced by higher-cost suppliers within a free trade area?

A)Trade creation
B)Strategic pricing
C)Synergy
D)Trade diversion
E)Protectionism

Question 61

A benefit of adopting the euro as a common currency is that it:

A)makes it easier to compare prices across Europe.
B)makes Europe an optimal currency area.
C)increases the range of investment options open only to institutions.
D)leads to higher prices, which translate into substantial gains for European producers.
E)decreases competition because it has become harder for consumers to shop around.

Question 62

Over time the euro will impact the pan-European capital market by leading to:

A)an increase in the cost of capital.
B)a decline in the overall level of savings and investment.
C)an increased efficiency with which investment funds are allocated.
D)reduced liquidity in the market.
E)reduced competition among European producers.

Question 63

Which of the following is true of the Single European Act?

A)It proposed to place frontier controls among European Community countries.
B)It sought to abolish the application of the principle of "mutual recognition" to product standards.
C)It proposed to reduce costs indirectly by preventing national suppliers to compete.
D)It provided the impetus for the restructuring of substantial sections of European industry.
E)It proposed to reduce costs directly by preventing lower-cost suppliers into national economies.

Question 64

Which of the following institutions has a monopoly in proposing European Union legislation?

A)Council of the European Union
B)Court of Justice
C)European Commission
D)European Parliament
E)European Community

Question 65

Which of the following is true about the European Parliament?

A)It cannot propose amendments to legislations.
B)It is directly elected by the populations of the member-states.
C)It is primarily a legislative body rather than a consultative body.
D)It does not have the right to veto laws such as single-market legislation.
E)The European Parliament does not have the right to vote on the appointment of commissioners.

Question 66

Which of the following is considered to be the ultimate controlling authority within the European Union?

A)Court of Justice
B)European Commission
C)European Council
D)European Parliament
E)European Community

Question 67

Which of the following is true of the Court of Justice?

A)The judges are required to act as representatives of national interests.
B)It comprises several judges from a few selected countries.
C)It is the supreme appeals court for European Union law.
D)A member country cannot bring another member country to this court.
E)Member countries cannot bring the commission or the council to this court.

Question 68

Which of the following is true about the European Commission?

A)The European Union's competition commissioner has been gaining influence as the chief regulator of competition policy in the member nations of the European Union.
B)The European Commission has to be approved by the Council of the European Union before it can begin work.
C)The European Commission does not have a policing role with respect to European Union laws.
D)The legislation proposed by the European Commission goes directly to the European Parliament.
E)The European Commission is the ultimate controlling authority within the European Union.

Question 69

Which of the following is true of the Treaty of Lisbon that was signed in 2007?

A)It defined the European Commission's role in competition policy.
B)It brought the commission to the court for failure to act according to a European Union treaty.
C)It created the position of the president of the European Council.
D)It lifted barriers to competition in the retail banking and insurance businesses.
E)It created the Court of Justice, the supreme appeals court for European Union law.

Question 70

Which of the following countries has adopted the euro as its currency?

A)Great Britain
B)France
C)Denmark
D)Sweden
E)Switzerland

Question 71

Which of the following treaties committed European Community members to adopt a common currency by January 1, 1999?

A)The Maastricht Treaty
B)The Treaty of Rome
C)The Treaty of Lisbon
D)The Montreal Treaty
E)The Treaty of Paris

Question 72

Which of the following meets in Strasbourg, France, is primarily a consultative rather than a legislative body, and debates legislation proposed by the commission and forwarded to it by the council?

A)European Parliament
B)European Central Bank
C)Court of Justice
D)European Free Trade Association
E)European Community

Question 73

The European Council is considered to be the ultimate controlling authority within the European Union (EU) because:

A)it monitors member-states to make sure they are complying with EU laws.
B)it has a monopoly in proposing EU legislation.
C)it has 754 members that are directly elected by the populations of the member-states.
D)draft legislation from the European Commission can become EU law only if the council agrees.
E)it is the supreme appeals court for EU law.

Question 74

Which of the following comprises the euro zone?

A)The 27 member nations of the European Union
B)The member nations of the European Union and the applicants to the union
C)The 18 member nations who use the euro as their currency
D)The member nations of the European Union and countries who have pegged their currencies to the euro
E)The 21 member nations that have their members in the European Parliament

Question 75

Establishment of the euro required participating national governments to:

A)have a sound fiscal situation.
B)have stable exchange rates.
C)be democratic in nature.
D)give up control over monetary policy.
E)have a high degree of price stability.

Question 76

Which of the following proposed that all impediments to the formation of a single market be eliminated by December 31, 1992, resulting in the Single European Act?

A)Delors Commission
B)Andean Pact
C)Treaty of Rome
D)North American Free Trade Agreement
E)Maastricht Treaty

Question 77

Which of the following is responsible for proposing European Union legislation, implementing it, and monitoring compliance with European Union laws by member-states?

A)Council of the European Union
B)European Commission
C)European Parliament
D)Court of Justice
E)European Community

Question 78

A key advantage of adopting the euro is that it:

A)helps in reduction of competition in Europe.
B)has prevented the development of a highly liquid pan-European capital market.
C)lowers foreign exchange and hedging costs in Europe.
D)insulates Europe from international competition.
E)increases the range of investment options open to institutions only.

Question 79

Which of the following was a change proposed by the Single European Act?

A)Establish frontier controls among European Community countries
B)Increase the resources required for complying with trade bureaucracy
C)Place barriers to competition in the retail banking and insurance businesses
D)Apply the principle of "mutual recognition" to product standards
E)Reduce costs directly by not allowing lower-cost suppliers into national economies

Question 80

Which of the following has 754 members as of 2014, and is directly elected by the populations of the member-states?

A)Court of Justice
B)European Council
C)European Commission
D)European Parliament
E)European Community