Question 1

A(n)________ requires member nations to harmonize their tax,monetary,and fiscal policies and create a common currency.

Accepted Answer

An economic union not only requires free trade among member nations, but also a harmonization of tax, monetary, and fiscal policies, as well as the creation of a common currency. This goes beyond the requirements of a customs union or a common market.

Question 2

Which of the following is the greatest extent of regional economic integration?

Accepted Answer

A political union represents the greatest extent of regional economic integration because it involves not only the free movement of goods, services, and factors of production and a common external trade policy (as seen in customs unions and common markets) but also requires a significant degree of political integration, including potentially a common government or coordinated policies at the highest level.

Question 3

Higher levels of trade between nations result in ________.

Accepted Answer

When there is higher levels of trade between nations, the competition between countries helps in reducing the product prices, resulting in greater purchasing power for the consumers.

Question 4

The process whereby countries in a geographic area cooperate with one another to reduce or eliminate barriers to the international flow of products,people,or capital is called ________.

Accepted Answer

Regional economic integration involves countries in a geographic area coming together to reduce or eliminate barriers to trade, investment, and the movement of people. This can involve the formation of free trade areas, customs unions, common markets, and economic unions. The overall goal is to increase economic cooperation, reduce trade barriers, and promote economic growth and development across the region. Choices B, C, and D are all concepts that are opposite of regional economic integration and involve countries prioritizing their own economic interests over international cooperation.

Question 5

Regional economic integration is also referred to as ________.

Accepted Answer

Regional economic integration refers to the process of countries in a particular region coming together to eliminate trade barriers and promote economic cooperation. It is also referred to as regionalism. Mercantilism, nationalism, and protectionism are all different economic theories or policies.

Question 6

Countries belonging to a ________ maintain whatever policies they see fit against nonmember countries.

Accepted Answer

In a free trade area, countries come together to reduce or eliminate tariffs and quotas between themselves but maintain their own independent trade policies towards non-member countries. This means they can set whatever tariffs and restrictions they see fit on imports from countries not part of the free trade area.

Question 7

In a(n)________,members eliminate internal trade barriers,adopt a common external policy toward nonmembers,and eliminate barriers to the movement of the factors of production.

Accepted Answer

A common market involves member countries eliminating internal trade barriers, adopting a common external policy toward nonmembers, and also eliminating barriers to the movement of the factors of production such as labor, capital, and goods. This goes beyond the requirements of a free trade area (A) or a customs union (B) where there is only a removal of tariffs and quotas on goods traded between members. An economic union (D) goes even further by coordinating fiscal and monetary policies and harmonizing regulations and laws across member states.

Question 8

Which of the following is an important goal of regional economic integration?

Accepted Answer

The goal of regional economic integration is to raise the living standards of people by promoting increased trade and investment among participating countries. It is not about increasing prices, limiting choices, or establishing a socialist government.

Question 9

The least amount of sovereignty that must be surrendered to a trading bloc occurs in a ________.

Accepted Answer

In a free trade area, member countries eliminate tariffs and other trade barriers among themselves, but each country maintains its own sovereignty over trade policies outside of the agreement. Therefore, the least amount of sovereignty is surrendered in a free trade area compared to other forms of economic integration such as a common market or economic union, where members must agree to common policies and regulations. A political union involves the highest level of integration, where member countries merge their sovereignty to create a single sovereign entity.

Question 10

Which of the following is a potential drawback of regional economic integration?

Accepted Answer

Trade diversion occurs when members of a regional economic organization start trading more with each other, even though they could have found better quality or cheaper goods from outside the region. This can lead to inefficiencies, higher prices, and reduced competition, hurting consumers and businesses alike.

Question 11

An increase in the level of trade among nations that results from regional economic integration is called ________.

Accepted Answer

Trade creation is the correct term to describe the increase in trade resulting from regional economic integration. This occurs when member countries are able to produce goods more efficiently and at lower costs, leading to increased trade within the group.

A) Trade diversion refers to a situation where regional economic integration leads to a decrease in trade with non-member countries.
B) Mercantilism is an outdated economic theory that emphasizes increasing a country's wealth through exports and accumulating gold and silver.
D) Economic nationalism refers to a government's efforts to protect domestic industries and promote economic independence, often through trade barriers and other protectionist policies. This is not directly related to regional economic integration.

Question 12

Which of the following is a result of trade creation?

Accepted Answer

Trade creation leads to an increase in the demand for goods as countries specialize in the production of the goods that they have a comparative advantage in and trade with each other. This creates a situation in which the availability and variety of goods tends to increase.

Question 13

Economic integration whereby countries remove barriers to trade and the movement of labor and capital among members,set a common trade policy against nonmembers,and coordinate their economic policies is called a(n)________.

Accepted Answer

An economic union involves the removal of barriers to trade and the movement of labor and capital among member countries, setting a common trade policy against non-members, and coordinating their economic policies, which goes beyond the level of integration seen in customs unions, common markets, and free trade areas.

Question 14

The main difference between a free trade area and a customs union is that the members of a customs union ________.

Accepted Answer

In a customs union, the member countries agree to treat trade with all nonmember nations in a similar manner by establishing a common external tariff. This means that all imports into the customs union from outside are subject to the same duties and trade restrictions, regardless of which member country they enter through. In contrast, a free trade area does not have a common external tariff and allows member countries to set their own trade policies with nonmember nations.

Question 15

A(n)________ eliminates trade barriers among member countries,and is the lowest level of regional economic integration.

Accepted Answer

A free trade area eliminates trade barriers, such as tariffs and quotas, among member countries, but does not establish a common external tariff or allow for coordination of economic policies beyond trade. It is the lowest level of regional economic integration.

Question 16

Country X wants to encourage trade by eliminating trade barriers with the three countries along its borders.However,Country X wants each of the countries to be able to establish their own trade policies even though this may lead to problems with trade deflection.Which form of economic integration is Country X most likely considering?

Accepted Answer

Country X is most likely considering a free trade area, which eliminates trade barriers among the member countries, but allows each country to make their own trade policies. This may lead to trade deflection, which is the diversion of trade away from the efficient producer and towards less efficient producers within the free trade area. A customs union eliminates trade barriers among member countries and establishes a common trade policy with non-member countries. A common market includes the free flow of goods, services, capital, and labor among member countries, in addition to a common trade policy with non-member countries. An economic union includes all the features of a common market, as well as a common monetary and fiscal policy.

Question 17

A(n)________ combines the elimination of internal trade barriers among member countries with the adoption of common external trade policies toward nonmembers.

Accepted Answer

A customs union involves the elimination of internal trade barriers among member countries and the adoption of common external trade policies toward nonmembers.

Question 18

The European Union is an example of ________ integration.

Accepted Answer

The European Union is a regional organization that integrates European countries through political, economic, and social cooperation. Its aim is to promote peace, stability, and prosperity in Europe by removing trade barriers, creating a common market, and pursuing joint policies on issues such as energy, environment, and security. Therefore, it is not a global or bilateral integration, and there is no concept of relative integration in this context.

Question 19

Which of the following is true of trade diversion?

Accepted Answer

Trade diversion occurs when a member country of a trade agreement switches from buying cheaper imports from non-member countries to more expensive imports from within the trade agreement. This generally raises prices for consumers in the member country, as they are forced to buy more expensive goods from within the agreement instead of cheaper goods from non-member countries.

Question 20

Economic integration whereby countries remove all barriers to trade among themselves,but each country determines its own barriers against nonmembers,is called a(n)________.

Accepted Answer

A free trade area is an economic integration where member countries remove all barriers to trade among themselves, but each country determines its own barriers against nonmembers. Examples of free trade areas include NAFTA and ASEAN Free Trade Area. Option A is incorrect because an economic union involves closer economic integration than a free trade area, such as the adoption of a common currency and coordination of economic policies. Option B is incorrect because in a customs union, member countries not only remove trade barriers among themselves but also establish a common external trade policy towards nonmembers. Option C is incorrect because in a common market, in addition to free movement of goods and services, there is also free movement of capital and labor among member countries.

Quiz 8: Regional Economic Integration

A(n) ________ requires member nations to harmonize their tax,monetary,and fiscal policies and create a common currency.