Deck 9: Regional Economic Integration

Question 1

The European Union was established to help Europe build up its armed defenses in response to World War I.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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.

Answer 3

False

Question 4

The scope of the WTO covers all tariff and nontariff barriers to regional economic integration.

Question 5

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 6

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

Question 7

The adoption of a common currency, the euro, makes it easier to compare prices across Europe, which has resulted in increased competition.

Question 8

The European Free Trade Association is the most enduring free trade area in the world.

Question 9

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.

Question 10

In recent decades there have been fewer trade blocs established to promote regional economic integration.

Question 11

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

Question 12

The Andean Community now operates as a customs union.

Question 13

While the World Trade Organization and other institutions have been working toward achieving a free trade regime, complete success has not yet occurred.

Question 14

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

Question 15

By adopting the euro, the European Union has created the most widely-traded currency in the world.

Question 16

A political union creates a central source for coordinating the economic, social, and foreign policy of member states.

Question 17

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 18

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

Question 19

The European Parliament is appointed by the prime ministers of each member state.

Question 20

One advantage to adopting the euro is that is represents an optimal currency area.

Question 21

Which trade agreement aims to remove all barriers to the free flow of goods between Canada, the United States and Mexico?

A) TRIPS
B) Mercosur
C) NAFTA
D) EU
E) ASEAN

Question 22

The six member countries that have embraced a common market are disappointed with the outcome of their economic integration. They want something that entails a closer economic integration and cooperation than a common market and decide to pursue a common currency. They are forming a(n)

A) command economy.
B) customs union.
C) efficient market.
D) free trade area.
E) economic union.

Question 23

What is a defining characteristic of 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 24

The European Union is considered a(n) ________ even though not all members have adopted a common currency.

A) planned economy
B) free trade area
C) economic union
D) customs union
E) common market

Question 25

The failure of the Doha Round of talks helped foster renewed emphasis on bilateral trade agreements.

Question 26

A firm that operates outside of a trading bloc will likely face the improved position of competitors within the trading bloc.

Question 27

The free trade pact known as Mercosur has been successful at creating a full customs union between Brazil and Argentina.

Question 28

To spur trade, four South American countries decide there will be no barriers to trade between the countries, agree on a common external trade policy, and allow factors of production to move freely between them. In short, the four countries formed a(n)

A) command economy.
B) customs union.
C) common market.
D) efficient market.
E) free trade area.

Question 29

Canada and the United States agree to remove all barriers to the trade of goods between them. However, the countries agree that each would be allowed to determine its own trade policies with regard to nonmembers. The economic integration between these countries is called a(n)

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

Question 30

The European Free Trade Association initially consisted of member nations that

A) were not interested in lifting trade barriers.
B) did not produce industrial goods.
C) wanted to form an agreement with the United States.
D) decided not to be part of the European Community.
E) imposed a common tariff, of 5 to 20 percent, on imported products.

Question 31

Today, developments in the EU and NAFTA carry the biggest implications for business practices.

Question 32

Within a(n) ________, there is a level of economic integration that 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 33

While the countries of Canada and Mexico are committed to removing all barriers to the free flow of goods and services between each other, they are independent in their trade policy dealings with other countries. This represents a(n)

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

Question 34

Political turmoil in Africa has prevented the success of regional trade blocs.

Question 35

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

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

Question 36

What is 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 37

The six countries on the northern side of the Pacific Rim agreed to reduce and ultimately remove tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other. The agreement among these countries is referred to as

A) regional economic integration.
B) cross-cultural integration.
C) a zoning agreement.
D) administrative trade policies.
E) a balance-of-trade equilibrium.

Question 38

In a(n) ________, a group of countries are committed to removing all barriers to the free flow of goods and services between each other but pursue independent external trade policies.

A) free trade area
B) command economy
C) efficient market
D) foreign exchange market
E) location economy

Question 39

Three Latin American countries enter into an agreement to remove all tariffs and trade barriers between them. They decide on a common external trade policy and charge the same tariffs. Which level of economic integration best describes this arrangement?

A) political union
B) customs union
C) common market
D) economic union
E) monetary union

Question 40

Under a common market agreement, you would find

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) a lack of administrative machinery to oversee trade relations with nonmembers.
E) mandatory use of a common currency among member nations.

Question 41

Brett Thiesen wants to make a political case for regional economic integration to his electorate. Which valid statement can he make in this regard?

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 seeking a united Europe have always had a desire to make another war in Europe imminent.

Question 42

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 43

After the formation of a free trade area for its member countries, the United States found that its high-cost furniture producers in North Carolina were replaced by low-cost producers from another country within the free trade area. This is an example of

A) value creation.
B) strategic pricing.
C) trade creation.
D) trade diversion.
E) economic exposure.

Question 44

Two foreign nations decided to impose 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. Country A now begins to import sugar from Country B. Prior to this, Country A was producing sugar at a higher cost so it now benefits from this transaction. This is an example of

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

Question 45

One reason for the establishment of the European Community in 1957 was the

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

Question 46

Economic theories for integration imply that free trade and investment create ________ for participants.

A) increased trade barriers
B) more monopolies
C) a positive-sum game
D) increased restrictions on exports
E) a zero-sum game

Question 47

The European Economic 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 48

As a result of the formation of a free trade area between six member countries in the Pacific Rim, one member country found that its lower-cost external suppliers were replaced by higher-cost suppliers within the free trade area. This is an example of

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

Question 49

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

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

Question 50

Suppose the countries of Iceland and Norway set up a free trade area, eliminating all trade barriers between themselves but maintaining tariffs on imports from the rest of the world. Now, Iceland begins to import wool from Norway. However, Iceland had previously been importing wool from England, which produced wool more cheaply than both Iceland and Norway. What is this an example of?

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

Question 51

Which of these situations shows how concerns over national sovereignty can act as an impediment to regional economic integration?

A) Organization of the Petroleum Exporting Countries regulating the supply of petroleum as a cartel
B) 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) rise of the World Trade Organization

Question 52

How many trade blocs are in Europe?

A) two
B) zero
C) six
D) eleven
E) one

Question 53

The goal of a new Central American group formed as an economic union is to have a Council of Ministers that would coordinate the economic, social, and foreign policy of the member states. This group wants to be a

A) free trade area.
B) political union.
C) regional union.
D) common market.
E) command economy.

Question 54

The European Parliament plays an important role in the European Union and creates a(n) ________ to coordinate the economic, social, and foreign policy of the member states.

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

Question 55

The ________ has a monopoly in proposing European Union legislation because the council cannot legislate without its permission.

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

Question 56

The ________ 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 57

How did the Treaty of Rome affect trade?

A) It obliged all European Union members to adopt the euro.
B) It committed the European Economic 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 58

Which political factor resulted in the establishment of the European Union (EU)?

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

Question 59

What is one main impediment to regional economic integration?

A) identical political ideologies
B) reduced immigration
C) loss of national sovereignty
D) lack of popular support
E) difficult international policies

Question 60

After the creation of a free trade area involving five nations, higher cost external fabric producers were replaced by lower-cost external fabric producers within the free trade area. This is known as

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

Question 61

The euro zone is comprised of the

A) 27 member nations of the European Union.
B) member nations of the European Union and the applicants to the union.
C) 19 member nations who use the euro as their currency.
D) member nations of the EU and affiliated countries who have pegged their currencies to the euro.
E) 21 member nations that have their members in the European Parliament.

Question 62

The practices of the European Central Bank are similar to the

A) United States Federal Reserve.
B) World Trade Organization.
C) European Parliament.
D) United Nations.
E) International Monetary Fund.

Question 63

The price of a bouquet of tulips in France is 4 euros. Jenna Algren, a frequent international traveler, found that a similar bouquet of tulips cost only 3 euros in Belgium. This demonstrates that the 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 64

Within the EU, it is the responsibility of the ________ to debate legislation and forward it to the council.

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

Question 65

What event caused many EU countries to wait on adopting the euro as a common currency?

A) Great Depression
B) debt crisis of 2010-2012
C) 9/11 terrorist attacks
D) fallout from the United Nations
E) 2016 election results

Question 66

One result of the Single European Act was that it

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

Question 67

Two neighboring countries have the same wage rates, tax regimes, and business cycles. In addition, the two countries have reacted similarly to past economic shocks. These two countries can adopt a common currency because they form a(n)

A) managed currency zone.
B) open exchange regime.
C) optimal currency area.
D) free trade area.
E) advanced monetary zone.

Question 68

The ________ 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 69

One drawback of adopting the euro for member states is a(n)

A) loss of control over national monetary policy.
B) increase in the cost of capital.
C) reduction in the liquidity of capital markets.
D) reduction of price differentials within the euro zone.
E) loss of investment options open to both individuals and institutions.

Question 70

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 71

Greece and Portugal have different wage rates, tax regimes, and business cycles. The two countries have also reacted differently in the past to external economic shocks. The dissimilarities are an example of one of the drawbacks of the euro that economists refer to as the EU not being in a(n)

A) managed currency zone.
B) open exchange regime.
C) optimal currency area.
D) free trade area.
E) advanced monetary zone.

Question 72

The ________ committed European Community members to adopt a common currency by January 1, 1999.

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

Question 73

One result of the Treaty of Lisbon that was signed in 2007 is that it

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

Question 74

The European Parliament is described as a(n) ________ body.

A) legislative
B) consultative
C) taxing
D) economic
E) judicial

Question 75

Great Britain, Denmark, and Sweden have stayed out of the euro zone because of the

A) dollar peg advocated by some members of the European Union.
B) implied loss of national sovereignty to the European Central Bank.
C) volatility of the euro.
D) reluctance to compete directly against the U.S. dollar.
E) reluctance to be considered an optimal currency area.

Question 76

The Court of Justice acts as

A) the co-legislator for almost all European laws.
B) a consultative body rather than a legislative body.
C) the supreme appeals court for European Union law.
D) the ultimate controlling authority within the EU for legislation.
E) a monitor for EU compliance laws.

Question 77

The ________ 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 78

What 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 79

How has adoption of the euro affected economic efficiency in European companies?

A) It has created an increase in the cost of capital.
B) It has produced a decline in the overall level of savings and investment.
C) It has increased competition and produced long-run gains.
D) It has reduced liquidity in the market.
E) It has reduced competition and diminished gains.

Question 80

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.