Regional economic integration involves 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.
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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.
The movement toward regional economic integration been most successful in Asia.
FALSE
Nowhere has the movement toward regional economic integration been more successful than in Europe
In a customs union, trade barriers are eliminated among member countries, and each country maintains its own external trade polices with nonmember countries.
A customs union eliminates trade barriers between member countries and adopts a common external trade policy.
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.
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.
A common market entails even closer economic integration and cooperation than an economic union.
An economic union entails even closer economic integration and cooperation than a common market.
The European Union is an example of a perfect economic union.
The EU is an economic union, although an imperfect one.
Coordination and policy harmonization problems are largely a function of the number of countries that seek agreement.
The greater the number of countries involved, the more perspectives that must be reconciled, and the harder it will be to reach agreement.
Linking neighboring countries economically and making them interdependent creates incentives to increase political cooperation as well.
Linking neighboring economies and making them increasingly dependent on each other creates incentives for political cooperation between the neighboring states and reduces the potential for violent conflict.
Because of the fact that everyone benefits from economic integration, it is easy to achieve and sustain.
While a nation as a whole may benefit significantly from a regional free trade agreement, certain groups may lose.
A major impediment to economic integration is the loss of sovereignty it entails.
A major impediment to integration arises from concerns over national sovereignty.
Trade diversion occurs when higher-cost external producers are replaced by lower-cost external producers within the free trade area.
Trade creation occurs when higher-cost external producers are replaced by lower-cost external producers within the free trade area.
In theory, WTO rules should ensure that a free trade agreement results in trade diversion.
In theory, WTO rules should ensure that a free trade agreement does not result in trade diversion.
A regional free trade agreement will benefit the world only when the amount of trade it creates exceeds the amount of trade it diverts.
A regional free trade agreement will benefit the world only if the amount of trade it creates exceeds the amount it diverts.
There are two main trading blocs in Europe, the European Union and the European Free Trade Association.
Europe has two trade blocs—the European Union and the European Free Trade Association.
The Treaty of Rome, signed in 1957, established the European Free Trade Association.
With the signing of the Treaty of Rome in 1957, the European Community was established.
A central reason for the establishment of the EU was the devastation of Western Europe during two world wars and the desire for a lasting peace.
The European Union (EU) is the product of two political factors: (1) the devastation of Western Europe during two world wars and the desire for a lasting peace, and (2) the European nations' desire to hold their own on the world's political and economic stage.
The Council of the European Union is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states.
The European Commission is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states.
The ultimate controlling unit within the EU is the European Council.
The European Council represents the interests of member states. It is clearly the ultimate controlling authority.
The European Parliament is primarily a consultative rather than legislative body.
The European Parliament, which now has 732 members, is directly elected by the populations of the member states. It is primarily a consultative rather than legislative body.
The judges of the European Court of Justice are required to act as representatives of national interests, rather than as independent officials.
The judges are required to act as independent officials, rather than as representatives of national interests.
21. The establishment of the euro required participating countries to give up their monetary policy.
Establishing the euro required participating national governments not only to give up their own currencies, but also to give up control over monetary policy.
Establishment of the euro created the largest currency zone in the world, replacing the position the U.S. dollar had held for decades.
By adopting the euro, the EU has created the second most widely traded currency in the world after that of the U.S. dollar.
Great Britain, Sweden, and France have led the push toward adopting the euro.
Three long-term EU members, Great Britain, Denmark, and Sweden, are still sitting on the sidelines. They have not adopted the euro.
A key benefit resulting from the adoption of the euro is the ability to compare prices across member markets.
The adoption of a common currency makes it easier to compare prices across Europe. This has been increasing competition because it has become easier for consumers to shop around.
The implied loss of national sovereignty to the ECB underlies the decision by Great Britain, Denmark, and Sweden to stay out of the euro zone for now.
28. On average, studies indicate that NAFTA's overall impact has been small but positive.
Studies of NAFTA's impact suggest its initial effects were at best muted, and both advocates and detractors may have been guilty of exaggeration. On average, studies indicate that NAFTA's overall impact has been small but positive.
The governments of both Canada and the United States are keen on adding other Latin American countries to NAFTA.
A number of other Latin American countries have indicated their desire to eventually join NAFTA. The governments of both Canada and the United States are adopting a wait-and-see attitude with regard to most countries.
The Andean Pact is a highly successful common market modeled after the EU.
The Andean Pact was largely based on the EU model, but was far less successful at achieving its stated goals.
According to Alexander Yeats, the trade diversion effects of Mercosur outweigh its trade creation effects.
Alexander Yeats, a critic of the Mercosur, points out that the trade diversion effects of Mercosur outweigh its trade creation effects.
The Free Trade Area of the Americas that was established in 2005 has thus far proven to be a success.
Currently, however, FTAA is very much a work in progress, and the progress has been slow.
The bulk of intra-ASEAN trade consisted of goods whose tariffs had been reduced through an ASEAN preferential trade arrangement.
Until recently, only 5 percent of intra-ASEAN trade consisted of goods whose tariffs had been reduced through an ASEAN preferential trade arrangement.
The Asia-Pacific Economic Cooperation was established to increase multinational cooperation in view of the economic rise of the Pacific nations and the growing interdependence within the region.
The stated aim of APEC is to increase multilateral cooperation in view of the economic rise of the Pacific nations and the growing interdependence within the region.
Political turmoil in several African nations has persistently impeded any meaningful progress in economic integration.
Significant political turmoil in several African nations has persistently impeded any meaningful progress.
The East African Community (EAC) has been a successful integration effort in Africa during the last three decades.
In early 2001, Kenya, Uganda, and Tanzania, member states of the East African Community (EAC), committed themselves to relaunching their bloc, 24 years after it collapsed.
To exploit the opportunities presented by the EU, non-EU firms must establish EU subsidiaries.
Many major U.S. firms have long had subsidiaries in Europe. Those that do not would be advised to consider establishing them now, lest they run the risk of being shut out of the EU by nontariff barriers.
A benefit to companies of economic integration is the opportunity to centralize their production and reduce costs.
Rather than producing a product in each of the 27 EU countries or the 3 NAFTA countries, a firm may be able to serve the whole EU or North American market from a single location.
Once barriers to trade and investment are removed, companies can treat a group of integrated countries like the EU as a single market and produce standardized products for it.
Even after the removal of barriers to trade and investment, enduring differences in culture and competitive practices often limit the ability of companies to realize cost economies by centralizing production in key locations and producing a standardized product for a single multiple-country market.
The emerging role of the European Commission in competition policy suggests the EU is increasingly willing and able to intervene and impose conditions on companies proposing mergers and acquisitions.
From least integrated to most integrated, the levels of economic integration are:
a common market, a free trade area, an economic union, a customs union, and a political union.
a free trade area, a customs union, a common market, an economic union, and a political union.
a customs union, a free trade area, a common market, a political union, and an economic union.
a common market, an economic union, a customs union, a free trade area, and a political union.
Several levels of economic integration are possible in theory. From least integrated to most integrated, they are a free trade area, a customs union, a common market, an economic union, and, finally, a full political union.
2
Country X and Country Y reach an agreement to boost bilateral trade. They agree to remove all barriers to the trade of goods and services. They, however, are free to determine their own trade policies with regard to nonmembers. Which level of economic integration is this an example of?
A customs union
An economic union
A common market
A Free trade area
4
In a free trade area, all barriers to the trade of goods and services among member countries are removed. Each country, however, is allowed to determine its own trade policies with regard to nonmembers.
Which feature of a customs union differentiates it from a free trade area?
Harmonization of members' tax rates
A common currency
A common external trade policy toward nonmembers
Ability of factors of production to move freely between members
3
A customs union eliminates trade barriers between member countries and adopts a common external trade policy. Establishment of a common external trade policy necessitates significant administrative machinery to oversee trade relations with nonmembers.
A _____ has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members.
common market
customs
union
free trade area
bonded market
1
Three countries agree to remove barriers to trade between member countries and adopt a common external trade policy toward nonmembers. They also agree to allow people and other factors of production to move freely across their borders. Which level of economic integration is this an example of?
Bonded market
Customs union
Free trade area
Common market
Which feature of a common market differentiates it from a customs union?
In a common market, labor and capital are free to move because there are no restrictions on immigration, emigration, or cross-border flows of capital between member countries. This is not possible in a customs union.
A(n) _____ involves the free flow of products and factors of production between member countries, the adoption of a common external trade policy, a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy.
economic union
customs union
An economic union involves the free flow of products and factors of production between member countries, the adoption of a common external trade policy, a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy.
Which feature of an economic union differentiates it from a common market?
Free flow of products and factors of production between member countries
A common monetary and fiscal policy
A common external trade policy toward
nonmembers
An economic union involves a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy. These are
Which of the following is a reason why the European Union is considered an imperfect economic union?
Factors of production are not allowed to move freely between member countries.
Not all members of the union have adopted the euro.
Almost all markets are heavily
regulated.
Products and services are not allowed to move freely between member countries.
The EU is an economic union, although an imperfect one because not all members of the EU have adopted the euro, the currency of the EU; differences in tax rates and regulations across countries still remain; and some markets, such as the market for energy, are still not fully deregulated.
The move toward economic union raises the issue of how to make a coordinating bureaucracy accountable to the citizens of member nations. Which of the following offers a solution to this problem?
A free trade
area
A political union
The move toward economic union raises the issue of how to make a coordinating bureaucracy accountable to the citizens of member nations. The answer is through political union in which a central political apparatus coordinates the economic, social, and foreign policy of the member states.
A political benefit of economic integration is that:
it enables participants to achieve gains from the free flow of trade.
it enables participants to achieve gains from the free flow of investment.
it allow countries to specialize in the production of goods and services that they can produce
most efficiently.
it creates reduces the potential for violent conflict.
Which of the following explains why economic integration has never been easy to achieve or sustain, despite the strong economic and political arguments in support?
No country has shown significant improvement because of economic integration.
Countries fear a reduction of their political weight in the world because of economic integration.
Linking neighboring economies and making them increasingly dependent on each other creates little incentives for political cooperation.
While a nation as a whole may benefit significantly, certain groups may lose.
Although economic integration aids the majority, it has its costs.
_____ occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area.
A. Trade deficit
B. Trade diversion
C. Trade creation
D. Trade distortion
C
Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area.
Which of the following occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area?
A. Efficiency gain
C. Trade deficit
D. Trade creation
B
Trade diversion occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area. A regional free trade agreement will benefit the world only if the amount of trade it creates exceeds the amount it diverts.
Country A and Country B entered into a free trade agreement recently. After this, Country A starts importing heavy machinery from Country B. Country A used to previously import such machinery at lower rates from another country. Which of the following has occurred in this scenario?
A. Trade creation
B. Efficiency gain
D. Trade diversion
D
Trade diversion occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area.
To ensure that a free trade agreement does not result in trade diversion, which of the following has to come within the scope of WTO?
Nontariff barriers
Services
Energy markets
Tax rates
The only way to guard against the possibility of trade diversion is to increase the scope of the WTO so it covers nontariff barriers to trade.
The European Community was established by:
A. the Treaty of Rome signed in 1957.
B. the Maastricht Treaty signed in 1991.
C. the Maastricht Treaty of 1994.
D. the Single European Act of 1987.
A
The _____ is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states.
A. European Parliament
B. European Commission
C. Council of the European Union
D. Court of Justice
Why is the European Council said to be the ultimate controlling authority within the EU?
Since it is responsible for implementing EU legislation and monitoring compliance with EU laws by member states
Since its role in setting competition policy is becoming increasingly important to business
Since it has the right to vote on the appointment of commissioners
Since draft legislation from the commission can become EU law only if the council agrees
The European Council represents the interests of member states. It is clearly the ultimate controlling authority within the EU since draft legislation from the commission can become EU law only if the council agrees.
Which of the following is directly elected by the populations of the member states and is primarily a consultative rather than legislative body?
The European Parliament
The European Commission
The Council of the European Union
The Court of Justice
The European Parliament, which now has 732 members, is directly elected by the populations of the member states. It debates legislation proposed by the commission and forwarded to it by the council.
Which of the following was the outcome of the Treaty of Lisbon signed in 2007?
It established the European Community.
It resulted in the adoption of the Euro.
It changed the name of the European Community to the European Union.
It increased the power of the European Parliament.
After significant debate, in December 2007 the member states signed a new treaty, the Treaty of Lisbon, under which the power of the European Parliament is increased.
62. Which of the following observations pertaining to the EU's Court of Justice is incorrect?
It is comprised of one judge from each country.
It is the supreme appeals court for EU law.
Its judges are required to act as representatives of national interests.
A member country can bring other members to the court for failing to meet EU treaty obligations.
The Court of Justice, which is comprised of one judge from each country, is the supreme appeals court for EU law. The judges are required to act as independent officials, rather than as representatives of national interests.
Which of the following observations is not true of the euro?
It is used by all member states of the European Union.
It required participating countries to give up their own currencies.
It required participating countries to give up control over monetary policy.
By adopting it, the EU created the second most widely traded currency in the world.
The euro is now used by 17 of the 27 member states of the European Union.
Which treaty, signed in December 1991, committed EC members to adopting a common currency by January 1, 1999?
A. The Maastricht Treaty
B. The Treaty of Rome
C. The Single European Act
D. The Treaty of Lisbon
In December 1991, EC members signed a treaty (the Maastricht Treaty) that committed them to adopting a common currency by January 1, 1999.
Which of the following is seen as a benefit of the euro?
Governments gaining greater control over their monetary policies
Reduced competition in most industries
Zero interest expense for businesses
Lower foreign exchange and hedging costs
Because of the euro, businesses and individuals will realize significant savings from having to handle one currency, rather than many. These savings come from lower foreign exchange and hedging costs.
66. Which of the following is seen as a disadvantage of the euro?
A. Higher foreign exchange and hedging costs
B. National authorities losing control over monetary policy
C. It becomes difficult to compare prices across Europe
D. It undermines the development of a pan-European capital market
The drawback of euro is that national authorities have lost control over monetary policy.
In a(n) _____, 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.
optimal currency area
unified economic area
uniform currency zone
monetary zone
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.
Which of the following was required for new applicants to qualify for EU membership?
Minimum economy size of €1 trillion
Nationalization of private assets
Deregulation of markets
Sustained GDP growth of 10 percent for five years
To qualify for EU membership the applicants had to privatize state assets, deregulate markets, restructure industries, and tame inflation.
69. Which of the following is seen to be a consequence of the size of the EU from 15 nations to 27 nations?
Delays in the decision-making processes
Elimination of the sovereign debt
crisis
Euro becoming the most traded currency in the world
Huge initial impact on the overall economic welfare
Given the small size of the Eastern European economies, the initial impact of the EU expansion will probably be small. The biggest notable change might be in the decision-making processes, where budget negotiations among 27 nations are bound to prove problematic.
70. Which of the following is a reason why Turkey is not yet a member of the EU?
A. Because only about 10 percent of Turkey's international trade is with the EU.
B. Because of concerns over human rights issues in the country. C. Because the country has yet to form a customs union with the EU.
D. Because of Turkey's weak economy.
Full membership for Turkey has been denied because of concerns over human rights issues (particularly Turkish policies toward its Kurdish minority).
How does the NAFTA seem to increase the international competitiveness of U.S. and Canadian firms?
It gives them access to scarce natural resource hitherto unavailable.
It increases tariff barriers making the North American market less attractive to Asian companies.
It allows them to take advantage of lower labor costs in Mexico.
It gives them production bases in South American markets like Brazil and Argentina.
The international competitiveness of U.S. and Canadian firms that moved production to Mexico to take advantage of lower labor costs would be enhanced, enabling them to better compete with Asian and European rivals.
What was the main objection raised by those in the United States and Canada who opposed the ratification of the NAFTA?
Job losses
Balance of payment problems
Threat of competition from Asian companies
Threat of a loss of national sovereignty
Those who opposed NAFTA claimed that ratification would be followed by a mass exodus of jobs from the United States and Canada into Mexico as employers sought to profit from Mexico's lower wages and less strict environmental and labor laws.
Bolivia, Peru, Ecuador, Columbia, and Venezuela are all members of:
Mercosur.
NAFTA.
APEC .
the Andean Pact.
Bolivia, Chile, Ecuador, Colombia, and Peru signed an agreement in 1969 to create the Andean Pact.
Mercosur originated as a(n) _____ between Brazil and Argentina in 1988.
free trade pact
Mercosur originated in 1988 as a free trade pact between Brazil and Argentina.
According to Alexander Yeats:
the trade diversion effects of Mercosur outweigh its trade creation effects.
the fastest growing items in intra-Mercosur trade were capital-intensive goods produced
efficiently in the member countries.
Mercosur countries will be able to compete globally once the group's external trade barriers come down.
the customs union is becoming more perfect over time.
In early 2006, six CARICOM members and the United States established the _____, which was modeled on the EU's single market.
Central American Common Market
Central America Free Trade Agreement
Caribbean Single Market and
Economy
North American Free Trade Area
Modeled on the EU's single market, CSME's goal is to lower trade barriers and harmonize macroeconomic and monetary policy between member states.
Which of the following is true of ASEAN?
China, India, South Korea, and Singapore are among its members.
Collectively, the member states account for about 55 percent of world trade.
It is slowly progressing toward establishing a free trade zone.
It has been successful in fulfilling its basic objective of fostering freer trade between member countries.
Formed in 1967, the Association of Southeast Asian Nations (ASEAN) includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. ASEAN and AFTA are at least progressing toward establishing a free trade zone.
Which of the following accounts for about 55 percent of the world's GNP and 49 percent of world trade?
NAFTA
APEC
ASEAN
EFTA
Collectively, the APEC member states account for about 55 percent of the world's GNP, 49 percent of world trade, and much of the growth in the world economy.
Which of the following is the most frequently aired objection to free trade in Africa?
These economies are too small for free trade to exist.
These countries are not ready for a full-fledged political union with a common currency.
They need to be "protected" by tariff barriers from unfair foreign competition.
The larger nations like South Africa and Kenya stand much to lose from free trade and competition.
The argument most frequently heard in Africa is that because these countries have less developed and less diversified economies, they need to be "protected" by tariff barriers from unfair foreign competition.
The lowering of barriers to trade and investment between countries is likely to lead to _____ throughout the EU.
A. higher costs of borrowing
B. increase prices
C. increase in hedging costs
D. increased price competition
The lowering of barriers to trade and investment between countries is likely to lead to increased price competition throughout the EU and NAFTA.
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