Regional Economic Integration Chapter 9 Exam Questions

Global Business Today, 11e (Hill)

Chapter 9 Regional Economic Integration

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

2) 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.

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

4) 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.

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

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

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

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

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

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

11) 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.

12) 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.

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

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

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

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

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

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.

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

20) The Andean Community now operates as a customs union.

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

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

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

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

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

26) 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.

27) 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

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

A) Africa

B) South America

C) North America

D) Europe

E) Asia

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.

30) 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.

31) 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

32) 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.

33) 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

34) 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.

35) 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

36) 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.

37) 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.

38) 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.

39) 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

40) 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

41) 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

42) 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.

43) 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

44) 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.

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.

46) 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

47) 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

48) 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.

49) 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.

50) 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.

51) 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.

52) 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.

53) 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

54) How many trade blocs are in Europe?

A) two

B) zero

C) six

D) eleven

E) one

55) 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

56) 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.

57) 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.

58) 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.

59) 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

60) 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

61) 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

62) 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

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

A) legislative

B) consultative

C) taxing

D) economic

E) judicial

64) 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.

65) 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.

66) 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

67) 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

68) 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.

69) 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

70) 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.

71) 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

72) 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.

73) 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.

74) 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.

75) 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.

76) 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.

77) 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.

78) 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.

79) 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.

80) 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.

81) Since it was introduced in 1999, how has the euro compared to the U.S. dollar?

A) The value of the euro has been stable against the U.S. dollar.

B) The euro's value has steadily appreciated against the U.S. dollar.

C) The euro's value initially appreciated and then steadily depreciated against the U.S. dollar.

D) The euro has had a volatile trading history against the U.S. dollar.

E) The value of the euro rapidly surpassed, and continues to appreciate against the U.S. dollar.

82) The European Stability Mechanism was created to

A) help Britain exit from the EU.

B) replace the European Parliament.

C) target foreign allies who wanted free trade.

D) restore confidence in the euro.

E) act as a political governing body.

83) Which country has been granted three bailout efforts by the EU in an attempt to prevent a sovereign debt crisis?

A) Greece

B) France

C) Great Britain

D) Belgium

E) Portugal

84) The country of Turkey has lobbied for EU membership for many years but full membership has been denied because of

A) a lack of democratic reforms.

B) poor infrastructure.

C) investment high debt ratio.

D) concerns over human rights issues.

E) a lack of intellectual property rights.

85) An expected consequence of the implementation of the North American Free Trade Agreement was

A) low-skilled jobs would be moved out to Mexico resulting in lowering of average wage rates in the United States and Canada.

B) increased imports from Mexico would help reduce the huge trade deficit for United States and Canada.

C) lower incomes of the Mexicans would allow them to import fewer U.S. and Canadian goods, thereby decreasing demand.

D) a large number of Mexican firms would hire low-skilled workers from the United States.

E) some U.S. and Canadian firms would move production to Mexico to take advantage of lower labor costs.

86) An argument against the North American Free Trade Agreement centered on the fear that ratification would result in

A) low interest rates in the Unites States and Canada.

B) mass exodus of jobs from the United States into Mexico.

C) a move toward a common currency for NAFTA member nations.

D) competition from the members of the European Union.

E) high inflation in the United States and Canada.

87) The biggest leap of economic faith came from ________ when signing the NAFTA agreement.

A) the United States

B) Canada

C) Mexico

D) Panama

E) Brazil

88) The ________ is a 1969 agreement among Bolivia, Chile, Ecuador, Colombia, and Peru to establish a customs union.

A) Andean Pact

B) ASEAN

C) Mercosur

D) CARICOM

E) Caribbean Single Market and Economy

89) What resulted from the Andean Pact of 1969?

A) The pact failed to achieve any of its stated objectives due to political and economic problems.

B) The Andean Pact achieved most of its stated objectives, particularly the harmonization of economic policies.

C) The dominant political ideology in many of the Andean countries moved toward the democratic end of the political spectrum.

D) The pact effectively nullified the Galápagos Declaration.

E) The Andean Pact removed all common external tariffs.

90) The countries of the Andean Pact have faced

A) fast-paced democratic reforms.

B) low unemployment.

C) political stability.

D) low economic growth.

E) diminished debt burdens.

91) The Andean Community now operates as a(n)

A) common market.

B) economic union.

C) customs union.

D) command economy.

E) political union.

92) ________ is a pact that originated in 1988 to establish a free trade area now including Argentina, Brazil, Paraguay, and Uruguay.

A) ASEAN

B) NAFTA

C) Mercosur

D) CARICOM

E) CAFTA

93) In Alexander Yeats's criticism of Mercosur, he says that

A) the slowest growing items in intra-Mercosur trade were cars, buses, agricultural equipment, and other capital-intensive goods.

B) the trade creation effects of Mercosur outweighed its trade diversion effects.

C) Mercosur countries were prepared to compete globally once the group's external trade barriers came down.

D) Mercosur countries were insulated from outside competition by tariffs that run as high as 70 percent of value.

E) capital was being drawn toward more efficient enterprises.

94) Mercosur was temporarily suspended in 2001 because of a(n)

A) dotcom bust in Paraguay.

B) economic crisis in Argentina.

C) exit of Uruguay from the group.

D) devaluation of the Mexican peso.

E) Venezuelan financial crisis.

95) ________ is a trade pact among Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, which began in the early 1960s but collapsed in 1969 due to war.

A) Central American Common Market

B) Free Trade Area of the Americas

C) Caribbean Single Market and Economy

D) Mercosur

E) CARICOM

96) What caused the Central American Common Market to collapse in 1969?

A) the devaluation of the Brazilian currency by 40 percent

B) a coup in Nicaragua that led to the overthrow of the incumbent regime

C) war between Honduras and El Salvador after a riot at a soccer match between teams from the two countries

D) the withdrawal from the trade arrangement by Costa Rica

E) the collapse of monetary policy between Costa Rica and El Salvador

97) The Central American Free Trade Agreement is an agreement to lower trade barriers between six nations and

A) the United States.

B) the EU.

C) France.

D) the Philippines.

E) Germany.

98) The purpose of the Central America Free Trade Agreement is to

A) lower trade barriers between the United States and the Central American Common Market countries.

B) eliminate trade barriers between the CARICOM and Central American Common Market countries.

C) reduce of trade barriers between Caribbean Single Market and Economy nations and Central American Common Market countries.

D) introduce a common currency for Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua.

E) reduce tariffs and quotas between Costa Rica, Dominican Republic, and Nicaragua.

99) ________ is an association of English-speaking Caribbean states that are attempting to establish a customs union.

A) CARICOM

B) Central American Free Trade Agreement

C) Central American Common Market

D) Free Trade Area of the Americas

E) Caribbean Single Market and Economy

100) The goal of the Caribbean Single Market and Economy is to

A) remove all trade barriers between member nations in practice.

B) establish a political union.

C) adopt a common currency.

D) harmonize macroeconomic and monetary policy between member states.

E) establish an economic union.

101) The Caribbean Single Market and Economy is modeled after

A) the EU's single market.

B) a planned economy.

C) a command economy.

D) the U.S. free trade area.

E) CAFTA.

102) The ________ is an attempt to establish a free trade area between Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.

A) Asia-Pacific Economic Cooperation

B) South Asian Association for Regional Cooperation

C) Asian Clearing Union

D) Association of Southeast Asian Nations

E) Maastricht Treaty

103) ASEAN has two objectives: foster free trade among member countries and achieve cooperation in ________ policies.

A) political

B) religious

C) industrial

D) financial

E) agricultural

104) Regional trade blocs in Africa have been slow to establish mostly because of

A) significant political turmoil.

B) inefficiencies in the economy.

C) a lack of willing participants.

D) an unwillingness to lower all nontariff barriers.

E) a lack of intellectual property rights.

105) Briefly describe the concept of regional economic integration.

106) How is a common market different from an economic union?

107) Describe two impediments to regional economic integration.

108) Define trade creation and trade diversion with respect to regional economic integration.

109) Describe the role of the Treaty of Rome in the formation of the EU.

110) Discuss the four main institutions within the European Union.

111) What were the objectives of the Single European Act?

112) Briefly describe the benefits of the euro.

113) Describe the drawbacks of the euro.

114) Describe the exit by the British government from the EU.

115) Describe the Central American Common Market and the Central America Free Trade Agreement.

116) Explain why differences in culture can limit the ability of companies to centralize production in key locations. Provide an example.