Chapter 08

Chapter 08 - Regional Economic IntegrationChapter 08Regional Economic Integration

True / False Questions1.(p.274)One notable trend in the global economy in recent years has been the accelerated movement toward regional economic integration.TRUE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-1Topic: Levels of Economic Integration2.(p.274)World Trade Organization members are required to notify the UN of any regional trade agreements in which they participate.FALSE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-1Topic: Levels of Economic Integration3.(p.275)In 1991, Argentina, Brazil, Chile, and Bolivia implemented an agreement known as MERCOSUR to start reducing barriers to trade between each other.FALSE

AACSB: Reflective thinkingBT: KnowledgeDifficulty: MediumLearning Objective: 8-1Topic: Levels of Economic Integration

4.(p.275)While the move toward regional economic integration is generally seen as a good thing, some observers worry that it will lead to a world in which regional trade blocs compete against each other.TRUE

AACSB: Reflective thinkingBT: KnowledgeDifficulty: MediumLearning Objective: 8-1Topic: Levels of Economic Integration5.(p.276)In a free trade area, all barriers to the trade of goods and services among member countries are removed.TRUE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-1Topic: Levels of Economic Integration6.(p.276)A free trade area has a higher level of integration than a common market.FALSE

AACSB: Reflective thinkingBT: KnowledgeDifficulty: MediumLearning Objective: 8-1Topic: Levels of Economic Integration7.(p.277)A customs union eliminates trade barriers between member countries and adopts a common external trade policy.TRUE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-1Topic: Levels of Economic Integration

8.(p.277)The UN began as a customs union and has moved beyond this point.FALSE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-1Topic: Levels of Economic Integration9.(p.277)In a common market, labor and capital are free to move, as there are no restrictions on immigration, emigration, or cross-border flows of capital between markets.TRUE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-1Topic: Levels of Economic Integration10.(p.277)An economic union involves the free flow of products and factors of production between members and the adoption of a common external trade policy.TRUE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-1Topic: Levels of Economic Integration11.(p.277)The European Committee has been directly elected by citizens of the EU countries since the late 1970s.FALSE


12.(p.278)Economic theories suggest that free trade and investment is a positive-sum game, in which all participating countries stand to gain.TRUE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-2Topic: The Case for Regional Integration13.(p.278)Given the central role of knowledge in stimulating economic growth, opening a country to FDI also is likely to stimulate economic growth.TRUE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-2Topic: The Case for Regional Integration14.(p.278)Because many governments have accepted part or all of the case for intervention, unrestricted free trade and FDI have proved to be only an ideal.TRUE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-2Topic: The Case for Regional Integration15.(p.278)It is harder to establish a free trade and investment regime among a limited number of adjacent countries than among the world community.FALSE

AACSB: Reflective thinkingBT: KnowledgeDifficulty: MediumLearning Objective: 8-2Topic: The Case for Regional Integration

16.(p.278-279)The need for a united Europe to deal with the United States and the politically alien Soviet Union loomed large in the minds of many of the EC's founders.TRUE

AACSB: Reflective thinkingBT: KnowledgeDifficulty: MediumLearning Objective: 8-2Topic: The Case for Regional Integration17.(p.279)Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area.TRUE

AACSB: Reflective thinkingBT: KnowledgeDifficulty: MediumLearning Objective: 8-3Topic: The Case against Regional Integration18.(p.279)The benefits of regional integration are determined by the extent of trade creation, as opposed to trade diversion.TRUE

AACSB: Reflective thinkingBT: KnowledgeDifficulty: MediumLearning Objective: 8-3Topic: The Case against Regional Integration19.(p.279)Trade distribution occurs when higher-cost external suppliers replace lower-cost suppliers within the free trade area.FALSE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-3Topic: The Case against Regional Integration

20.(p.280)Europe has two trade blocs: the European Union and the European Free Trade Association.TRUE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe21.(p.280)The Treaty of Athens provided for the creation of a common market for the European Union.FALSE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe22.(p.281)The two main institutions in the political structure of the EU are the European Commission and the European Parliament.FALSE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe23.(p.281-282)The European Commission is run by a group of commissioners appointed by each member country for five-year renewable terms.TRUE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe

24.(p.282)The European Council is composed of the heads of state of the EU's member nations and the president of the European Commission.FALSE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe25.(p.282)Throughout the more recent years, the European Commission's role in competition policy has become stagnant.FALSE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe26.(p.283)The European Parliament represents the interests of member states and is the ultimate controlling authority within the EU.FALSE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe27.(p.283)The European Parliament has 732 members which are directly elected by the populations of the member states.TRUE


28.(p.283)One major debate now being waged in Europe is whether the council or the parliament should ultimately be the most powerful body of the EU.TRUE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe29.(p.285)To signify the importance of the Single European Act, the European Union decided to change its name to the European Community once the act took effect.FALSE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe30.(p.285)One of the objectives of the Single European Act was to establish more stringent restrictions on foreign exchange transactions between member countries.FALSE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe31.(p.285)The Single European Act has had a significant impact on the EU economy.TRUE


32.(p.285)The euro is now used by 18 of the 25 member states of the European Union; these 18 states are members of what is often referred to as the euro zone.FALSE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe33.(p.285)Establishing the euro required participating national governments not only to give up their own currencies, but also to give up control over monetary policy.TRUE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe34.(p.287)The development of a pan-European, euro-dominated capital market will increase the range of investment options to both individuals and institutions.TRUE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe35.(p.288)The implied loss of national sovereignty to the ECB underlies the decision by Great Britain, Germany, and Denmark to stay out of the euro zone for now.FALSE


36.(p.288)One way of dealing with divergent economic effects within the euro zone is for the EU to engage in fiscal transfers, taking money from prosperous regions and pumping it into depressed regions.TRUE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe37.(p.289)One reason for the rise in the value of the euro was that the flow of capital into the United States had increased in 2001.FALSE

AACSB: Reflective thinkingBT: KnowledgeDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in Europe38.(p.291)Protection of intellectual property rights was one of the contents of NAFTA.TRUE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in the Americas39.(p.293)Due to NAFTA, Mexico is now viewed as an unstable democratic nation.FALSE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in the Americas

40.(p.300)A firm cannot serve the whole EU or North American market from a single location; it has to produce the product in each of the 27 EU countries or the 3 NAFTA countries.FALSE

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-5Topic: Focus on Managerial Implications

Multiple Choice Questions41.(p.274)An agreement between countries in a geographic region to reduce tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other is referred to as:A.regional economic integration.B.cross-cultural economic integration.C.geographic economic-political integration.D.cross-cultural economic-political integration.

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-1Topic: Levels of Economic Integration42.(p.274)The North American Free Trade Agreement is an example of:A.western economic integrationB.regional economic integrationC.eastern economic integrationD.global economic integration


43.(p.274-275)By 2008, _____ WTO members had notified the organization of participation in one or more regional trade agreements.A.one-third ofB.one half ofC.two-thirds ofD.almost all

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-1Topic: Levels of Economic Integration44.(p.275)According to the textbook, by entering into _____, groups of countries aim to reduce trade barriers more rapidly than can be achieved under the WTO.A.regional agreementsB.synergistic agreementsC.global agreementsD.local agreements

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-1Topic: Levels of Economic Integration45.(p.275)Nowhere has the movement toward regional economic integration been more successful than in:A.Africa.B.South America.C.Asia.D.Europe.


46.(p.275)Which three countries implemented NAFTA?A.Panama, Mexico, and the United States.B.Canada, Brazil, and the United States.C.United States, Argentina, and Mexico.D.Canada, Mexico, and the United States.

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-1Topic: Levels of Economic Integration47.(p.275)NAFTA stands for:A.North Asian Free Trade Agreement.B.North African Free Trade Association.C.North Atlantic Free Trade Agreement.D.North American Free Trade Association.

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-1Topic: Levels of Economic Integration48.(p.275)Which countries are members of the free trade area known as MERCOSUR?A.Chile, Mexico, Columbia, and Paraguay.B.Argentina, Brazil, Paraguay, and Uruguay.C.Chile, Brazil, Uruguay, and Columbia.D.Mexico, Columbia, Paraguay, and Uruguay.


49.(p.275)The specter of the _____ turning into economic fortresses that shut out foreign producers with high tariff barriers is worrisome to those who believe in unrestricted free trade.A.EU and NAFTAB.EFTA and UNC.UN and WTOD.NAP and IMF

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-1Topic: Levels of Economic Integration50.(p.276)Which of the following selections accurately depicts the levels of economic integration, from least integrated to most integrated?A.Common market, economic union, full political union, free trade area, and customs unionB.Economic union, common market, free trade area, full political union, and customs unionC.Free trade area, customs union, common market, economic union, and full political unionD.Full political union, free trade area, common market, customs union, and economic union

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-1Topic: Levels of Economic Integration51.(p.276)In a _____, theoretically, no discriminatory tariffs, quotas, subsidies, or administrative impediments are allowed to distort trade between members.A.free trade areaB.collective bargaining actC.common exchange policyD.customs exchange committee


52.(p.276)The most enduring free trade area in the world is the:A.Asian Free Trade Association.B.MERCOSUR.C.European Free Trade Association.D.North American Trade Association.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-1Topic: Levels of Economic Integration53.(p.276)In a _____, all barriers to trade of goods and services are removed between member countries.A.collective bargainingB.unionized territoryC.no man's landD.free trade area

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-1Topic: Levels of Economic Integration54.(p.276)Which type of agreement is the most popular form of regional economic integration, accounting for almost 90 percent of regional agreements?A.Customs union agreementB.Free trade agreementC.Common market agreementD.Political union agreement


55.(p.276)Which of the following has the highest level of integration?A.An economic unionB.A free trade areaC.A customs unionD.A common market

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-1Topic: Levels of Economic Integration56.(p.276)Which four countries are currently members of the European Free Trade Association?A.Ireland, Iceland, Denmark, and BelgiumB.Norway, Iceland, Switzerland, and LiechtensteinC.Finland, Great Britain, Belgium, and DenmarkD.Sweden, Norway, Austria, and Finland

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-1Topic: Levels of Economic Integration57.(p.276)During the establishment stage, The European Free Trade Association's emphasis has been on free trade in:A.services.B.agricultural products.C.industrial goods.D.construction materials.

AACSB: Reflective thinkingBT: KnowledgeDifficulty: HardLearning Objective: 8-1Topic: Levels of Economic Integration

58.(p.277)A _____ eliminates trade barriers between member countries and adopts a common external trade policy.A.free trade areaB.global unionC.tariff unionD.customs union

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-1Topic: Levels of Economic Integration59.(p.277)A common market includes all of the following characteristics, EXCEPT:A.factors of production are allowed to move freely between members.B.there are no restrictions on immigration between members.C.harmonization of members' tax rates, and a common monetary and fiscal policy.D.there are no restrictions on the cross-border flow of capital between members.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-1Topic: Levels of Economic Integration60.(p.277)Like the common market, a(n) _____ involves the free flow of products and factors of production between members and the adoption of a common external trade policy.A.free trade areaB.economic unionC.global unionD.customs union

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-1Topic: Levels of Economic Integration

61.(p.277)The _____, which plays an important role in the EU, has been directly elected by citizens of the EU countries since the late 1970s.A.North Atlantic ParliamentB.North Atlantic Trade CommissionC.European ParliamentD.European Trade Commission

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-1Topic: Levels of Economic Integration62.(p.277)For years, _____ has functioned as a common market, although it has now become an imperfect economic union.A.EFTAB.NAFTAC.MERCUSORD.EU

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-1Topic: Levels of Economic Integration63.(p.277)A central political apparatus that coordinates the economic, social, and foreign policy of its member states is a(n):A.economic union.B.customs union.C.political union.D.free trade area.


64.(p.277)Which of the following provides the closest example to a political union?A.The European UnionB.The United StatesC.NAFTAD.MERCUSOR

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-1Topic: Levels of Economic Integration65.(p.278)Because many governments have accepted part or all of the case for intervention, _____ have proved to be only an ideal.A.unrestricted free trade and FDIB.restricted free trade and international mergersC.exporting and importingD.customs unions and common markets

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-2Topic: The Case for Regional Integration66.(p.279)The two main reasons that have made economic integration difficult to achieve are:A.concerns over the safety of travel from one nation to another and concerns over dissimilar political ideologies.B.concerns over costs and concerns over national sovereignty.C.concerns over immigration and emigration and concerns over economic and political ideologies.D.concerns over the safety of travel from one nation to another and concerns over national sovereignty.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-2Topic: The Case for Regional Integration

67.(p.279)In the context of regional trade integration, concerns about _____ arise because close economic integration demands that countries give up some degree of their control over such key policy issues as monetary policy, fiscal policy, and trade policy.A.costB.national sovereigntyC.financial stabilityD.cultural uniformity

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-2Topic: The Case for Regional Integration68.(p.279)In 1992, the _____ won the right to opt out of any single currency agreement.A.GermanB.RussianC.SpanishD.British

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-2Topic: The Case for Regional Integration69.(p.279)The phenomenon that occurs when high-cost domestic producers are replaced by low-cost producers within the free trade is called:A.trade alteration.B.trade qualification.C.trade creation.D.trade diversion.


70.(p.279)_____ occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area.A.Trade diversionB.Trade qualificationC.Trade synergyD.Trade creation

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-3Topic: The Case against Regional Integration71.(p.279-280)If the U.S. started to import textiles from Mexico according to a free trade agreement, but the U.S. previously acquired textiles from Costa Rica for less money, what kind of trade situation would the U.S. be in?A.Trade generationB.Trade creationC.Trade diversionD.Trade notification

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-3Topic: The Case against Regional Integration72.(p.280)In theory, _____ rules should ensure that a free trade agreement does not result in trade diversion.A.International Monetary FundB.World BankC.United NationsD.World Trade Organization


73.(p.280)There are now two trade blocs in Europe. These are the:A.European Union and European Free Trade Association.B.European Federation and North Atlantic Trade Block.C.North Atlantic Trade Block and European Union.D.European Federation and European Trade Association.

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe74.(p.280)Many now see the _____ as the emerging economic and political superpower of the same order as the United States and Japan.A.European FederationB.North Atlantic Trade BlockC.European UnionD.North Atlantic Federation

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe75.(p.280)The European Union is the product of two political factors. The devastation of Western Europe during the two world wars and:A.the European nations' desire to hold their own on the world's political and economic stage.B.the European nations' unawareness of potential economic benefits.C.the European nations' desire to make a coordinating bureaucracy accountable to the citizens of member nations.D.the emergence of United States as an economic superpower.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in Europe

76.(p.280)The original forerunner of the EU, the _____ was formed in 1951 by Belgium, France, West Germany, Italy, Luxembourg, and the Netherlands.A.European UnionB.European Coal and Steel CommunityC.European Agricultural and Energy UnionD.European Textiles and Agricultural Community

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in Europe77.(p.280)With the signing of the _____ in 1957, the European Community was established.A.Treaty of ParisB.Treaty of BrusselsC.Treaty of SwitzerlandD.Treaty of Rome

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in Europe78.(p.280)The European Community became the European Union with the signing of:A.the Maastricht Treaty.B.the Warsaw Pact.C.The Treaty of Rome.D.the Unification Treaty


79.(p.281)Which of the following countries is currently in the European Union?A.TurkeyB.MoldovaC.BelarusD.Romania

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe80.(p.281)Which of the following is NOT one of the four main institutions in the political structure of the European Union?A.The European CouncilB.The European Social CommitteeC.The European CommissionD.The European Parliament

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe81.(p.281)Which European institution is responsible for proposing EU legislation, implementing it, and monitoring compliance?A.The European CommissionB.The European CouncilC.The Court of JusticeD.The European Judicial Court


82.(p.282)In 2000, a proposed merger between Time Warner of the United States and EMI of the United Kingdom was withdrawn by _____, which expressed concern that the proposed merger would create a dominant player in the global music industry.A.the Council of the European UnionB.the European ParliamentC.the Court of JusticeD.the European Commission

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in Europe83.(p.282)The European Commission's role in _____ policy has become increasingly important in recent years.A.FDIB.securityC.legalD.competition

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in Europe84.(p.283)The _____, which now accounts for 732 members, is directly elected by the populations of the member states.A.European CommitteeB.European ParliamentC.European UnionD.European Task Force


85.(p.283)_____ now has the right to vote on the appointment of commissioners as well as veto some laws.A.The European CommissionB.The Court of JusticeC.The Council of the European UnionD.The European Parliament

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in Europe86.(p.283)Where does the European Parliament meet at in the European Union?A.Great BritainB.FranceC.GermanyD.Spain

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe87.(p.284)The purpose of the _____ was to have a single market in place by December 31, 1992.A.North Atlantic Sovereignty ActB.Single European ActC.European Primacy ActD.European Sovereignty Act


88.(p.284)The _____ was born of a frustration among EC members that the community was not living up to its promises.A.European Unification ActB.Single European ActC.European Free Trade ActD.European Common Commerce Act

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in Europe89.(p.284)Which institution is comprised of one judge from each country, and is the supreme appeals court for EU law?A.The European ParliamentB.The Court of JusticeC.The Council of the European UnionD.The European Commission

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-3Topic: Regional Economic Integration in Europe90.(p.284)Which two revolutions occurred in Europe in the late 1980s that set the course for eventual adoption of the European Union?A.The collapse of communism and adoption of the Single European Act.B.An increased reliance on communism and increased trade barriers.C.The collapse of communism and adoption of the European Parliament.D.An increased reliance on totalitarianism and adoption of NAFTA.


91.(p.284)Which of the following was NOT one of the purposes of the Single European Act?A.Remove all frontier controls between EU countries.B.Remove the principle of "mutual recognition" as it pertains to product standards.C.Open public procurement to nonnational suppliers.D.Lift barriers to competition in the EC's retail banking and insurance businesses.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in Europe92.(p.285)Which of the following is NOT a key economic criterion for a country to join the EU?A.High tourism revenuesB.A high degree of price stabilityC.Stable exchange ratesD.Converged long-term interest rates

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in Europe93.(p.286)When were euro notes and coins issued across Europe, replacing national currencies?A.January 1994B.January 1998C.January 2000D.January 2002


94.(p.287)Which of the following is NOT a benefit of the Euro?A.A common currency will make it easier to compare prices across Europe.B.Producers will be forced to look for ways to reduce their production costs to maintain their profit margins.C.EU having an advantage of being an optimal currency area and hence increased interest rates.D.A common currency will should give a strong boost to the development of a highly liquid pan-European capital market.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in Europe95.(p.287)For participating countries, a drawback of a single currency in Europe is that:A.costs for doing business will increase.B.it will be more difficult to attract imports.C.national authorities will lose control over monetary policy.D.it will be more difficult to compare prices across Europe.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in Europe96.(p.287)The development of a pan-European, euro-denominated capital market will increase the range of investment open to:A.communist countries.B.socialist economies.C.government officials.D.individuals and institutions.


97.(p.288)Which of the following EU countries has stayed out of euro zone because of an implied loss of national sovereignty?A.TurkeyB.DenmarkC.HungaryD.Germany

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in Europe98.(p.288)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 in a(n):A.political union.B.economic union.C.double currency area.D.optimal currency area.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in Europe99.(p.288)EU critics argue that the Euro will unleash enormous pressures for tax harmonization and fiscal transfers from the center, which cannot be pursued without the appropriate political structure. In their view:A.the EU should be disbanded.B.many foreign central banks should add more euros to their supply of foreign currencies.C.a single currency should follow a political union.D.EU should engage in fiscal transfers.


100.(p.289)A major reason for _____ in October 2000 was that international investors were investing money in booming U.S. stocks and bonds and taking money out of Europe to finance these investments.A.the fall of the dollar's valueB.the fall of the euro's valueC.mass migration from EuropeD.burst of the American stock market bubble

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in Europe101.(p.289)Which of the following makes it harder for euro zone exporters to sell their goods abroad?A.A weak Asian economyB.A strong European economyC.A depreciation in dollar valueD.A strong euro

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in Europe102.(p.289-290)In December 2002, which of the following countries did not become a member of EU?A.Czech RepublicB.HungaryC.RomaniaD.Poland


103.(p.290)In December 2002, the EU formally indicated that it would allow the _____ application to proceed with no further delay in December 2004 if the country improved its human rights record to the satisfaction of the EU.A.RomanianB.TurkishC.BulgarianD.Polish

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in Europe104.(p.291)Which of the following was NOT a content of NAFTA?A.Abolition on 100 percent of barriers on goods traded between Mexico, Canada, and the United States.B.Protection of intellectual property rights.C.Applications of national environmental standards.D.Establishment of two commissions with the power to impose fines and remove trade privileges.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in the Americas105.(p.292)According to the textbook, one likely short-term effect of NAFTA will be that many U.S. and Canadian firms will move some production to Mexico to take advantage of:A.cheaper transportation costs.B.lower interest rates.C.lower labor costs.D.a higher skilled labor force.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in the Americas

106.(p.292)The principle argument of those who opposed NAFTA centered on the fear that ratification would result in:A.higher interest rates in the U.S.B.mass exodus of jobs from the United States into Mexico.C.a move towards a common currency for NAFTA member nations.D.retaliation from the European Union.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in the Americas107.(p.293)Advocates of NAFTA claimed there would be long-run dynamic gains in the efficiency of _____ firms as they adjusted to the rigors of a more competitive marketplace.A.MexicanB.U.SC.CanadianD.Mexican and Canadian

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in the Americas108.(p.293)_____ is credited with helping to create the background for increased political stability in Mexico.A.The Andean PactB.MERCOSURC.NAFTAD.The South American Federation of Independent States

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in the Americas

109.(p.294)Bolivia, Chile, Ecuador, Colombia, and Peru signed an agreement in 1969 to create the:A.Andean Pact.B.Bolivian Pact.C.NW South America Group.D.South American Federation of Independent States.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in the Americas110.(p.294)MERCOSUR originated in 1988 as a free trade pact between:A.Mexico and Brazil.B.Peru and Chile.C.Brazil and Argentina.D.Venezuela and Peru.

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration in the Americas111.(p.294)In 1990, the MERCOSUR pact was expanded to include:A.Mexico and Brazil.B.Peru and Brazil.C.Paraguay and Uruguay.D.Venezuela and Peru.


112.(p.295)According to Alexander Yeats, a senior economist at the World Bank, the trade diversion effects of _____ outweigh its trade creation effects.A.MERCOSURB.CARICOMC.ASEAND.FTAA

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in the Americas113.(p.296)The customs union CARICOM applies to:A.East Asian nations.B.Middle Eastern nations.C.Central American nations.D.Caribbean nations.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in the Americas114.(p.296)Molded on _____ single market, the goal of CSME is to lower trade barriers and harmonize macro-economic and monetary policy between nations.A.the AsianB.United States'.C.the EU'sD.Latin America's


115.(p.296)If the _____ were established, which would include the United States and Brazil, it would open a free trade umbrella over nearly 850 million people who accounted for more than $16 trillion in GDP in 2007.A.FTAAB.ANSCANC.AECD.CARICOM

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in the Americas116.(p.297)Formed in 1967, ASEAN currently includes:A.Indonesia, Hong Kong, Singapore, Taiwan, Thailand, Malaysia, and Japan.B.Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam.C.Japan, Taiwan, Hong Kong, Singapore, China, Thailand, and Malaysia.D.Brunei, Indonesia, Hong Kong, Thailand, India, Malaysia, and Japan.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration Elsewhere117.(p.297)The United States, Japan, and China are among 18 members of a trade organization referred to as:A.AAFTC.B.APEC.C.USAEU.D.ANAEPC.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration Elsewhere

118.(p.297)The stated aim of _____ is to increase multilateral cooperation in view of the economic rise of the Pacific nations and the growing interdependence within the region.A.EACB.APECC.ASEAND.ANAEPC

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration Elsewhere119.(p.299)On the African continent, there are currently:A.two trade blocks.B.five trade blocks.C.nine trade blocks.D.twelve trade blocks.

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-4Topic: Regional Economic Integration Elsewhere120.(p.300)Currently, _____ have more profound and immediate implications for business practice.A.ASEAN and APECB.The EU and NAFTAC.NAFTA and APECD.ASEAN and NAFTA

AACSB: AnalyticBT: KnowledgeDifficulty: EasyLearning Objective: 8-5Topic: Focus on Managerial Implications

Essay Questions121.(p.274)Describe the concept of regional economic integration. Do you believe that regional economic integration is a good thing? Explain your answer.Regional economic integration refers to agreements made by groups of countries in geographic regions to reduce, and ultimately remove, tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other. The North American Free Trade Agreement, which is an agreement between the United States, Mexico, and Canada to reduce and eliminate tariffs between the three countries, is an example of regional economic integration.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-1Topic: Levels of Economic Integration

122.(p.276-277)Please briefly explain the following forms of economic integration: free trade area, customs union, common market, economic union, and full political union. Provide an example of each form of economic integration.Free Trade Area: In a free trade area, all barriers to the trade of goods and services among member countries are removed. In a theoretically ideal free trade area, no discriminatory tariffs, quotas, subsidies, or administrative impediments are allowed to distort trade between member nations. Each country, however, is allowed to determine its own trade policies with regard to nonmembers. The European Free Trade Association, involving Norway, Iceland, and Switzerland, is an example of a free trade area.Customs Union: A customs union eliminates trade barriers between member countries and adopts a common external policy. The Andean Pact, which involves Bolivia, Columbia, Ecuador, and Peru, is an example of a customs union.Common Market: A common market eliminates trade barriers between member countries and adopts a common external policy. In addition, factors of production are also allowed to move freely between member countries. Thus, labor and capital are free to move, as there are no restrictions on immigration, emigration, or cross-border flows of capital between members. Hence, a much closer union is envisaged in a common market than a customs union. The European Union is currently a common market, although it has now moved beyond this stage.Economic Union: An economic union eliminates trade barriers between member nations, adopts a common external policy, and permits factors of production to move freely between member countries. In addition, a full economic union requires a common currency, harmonization of the member countries' tax rates, and a common monetary and fiscal policy. There are no true economic unions in the world today.Political Union: is a central political apparatus coordinates the economic, social, and foreign policy of the member states. As a result, all of the components of an economic union would apply, in addition to the political coupling of the countries involved. The United States is an example of a political union, in which previously separate "states" combined into one country.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: HardLearning Objective: 8-1Topic: Levels of Economic Integration

123.(p.276-277)Describe the difference between a free trade area and a common market?In a free trade area all barriers to the trade of goods and services among member countries are removed. In a common market, the factors of production are also allowed to move freely between member countries and a common external trade policy is adopted. In addition, 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 nations.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-1Topic: Levels of Economic Integration124.(p.279)What are the primary impediments to integration? Are these impediments difficult to overcome? Explain your answer.Even though there may be a clear rationale for economic integration, there are two impediments that make integration difficult in many cases. First, although economic integration typically benefits the majority of the people in a country, certain groups may lose. For example, according to the textbook, as a result of the 1994 establishment of NAFTA some Canadian and U.S. workers in such industries as textiles, which employ low-cost, low-skilled labor, will lose their jobs as Canadian and U.S. firms move their production to Mexico. As a result, even though the population as a whole may gain as a result of an agreement like NAFTA, these individuals may loseThe second impediment to integration arises from concerns over national sovereignty. For example, for a full economic union to become a reality, the countries involved have to establish a common currency. Concerns about national sovereignty arise because close economic integration demands that countries give up some degree of control over such key issues as monetary policy, fiscal policy (e.g., tax policy), and trade policy. This has been a major stumbling block in the EU. To achieve full economic union, the EU introduced a common currency, the euro, controlled by a central EU bank. Although most member states have signed on, Great Britain remains an important holdout.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-2Topic: The Case for Regional Integration

125.(p.279)Define trade creation and trade diversion with respect to regional economic integration. Given that integration can both create and divert trade, under what circumstances will regional integration be in the best interest of the world economy?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 with the free trade area. 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.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-3Topic: The Case against Regional Integration126.(p.281-284)Name the four political institutions that formulate and implement the European political structure, and describe their roles.The four main institutions are the European Commission, the Council of the European Union, the European Parliament, and the Court of Justice. The European Commission is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states. Its role in competition policy has become increasingly important to business in recent years. The Council of the European Union represents the interests of member states. It is the ultimate controlling authority within the EU since draft legislation from the commission can become EU law only if the council agrees. The European Parliament has about 732 members, and is the primary consultative body. It debates legislation proposed by the commission and forwarded to it by the council. Finally, 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.


127.(p.284-285)What two revolutions occurred in Europe in the late 1980s? What are the objectives of the Single European Act?The two revolutions that occurred in Europe in the late 1980s were the collapse of communism in Eastern Europe and the establishment of the Single European Act. The objectives of the Single European Act include: removing all frontier controls between EC countries, applying the principle of mutual recognition to product standards, opening public procurement to nonnational suppliers, lifting barriers to competition in the retail banking and insurance businesses, removing all restrictions on foreign exchange transactions between member countries, and abolishing restrictions on cabotage.


128.(p.290-293)Describe the arguments for and against the North American Free Trade Agreement (NAFTA). In your opinion, is the recent ratification of NAFTA a positive development or a negative development for the citizens of the countries involved?In general, the proponents of NAFTA have argued that NAFTA should be seen as an opportunity to create an enlarged and more efficient productive based for the entire North American region. The proponents concede that some lower-income jobs will move from the United States and Canada to Mexico. However, they argue that in the end, this will benefit all three countries involved because the movement of jobs to Mexico will create employment and economic growth, and as Mexico's economy grows the demand for U.S. and Canadian products in Mexico will increase. In addition, the international competitiveness of U.S. and Canadian firms that move production to Mexico to take advantage of lower labor costs will be enhanced, enabling them to better compete against Asian and European rivals.Those that oppose NAFTA claim that U.S. and Canadian citizens will lose their jobs in alarming numbers as low-income positions are moved to Mexico to take advantage of lower wage rates. To date, the movement of jobs from the U.S. and Canada has not reached the numbers that NAFTA's critics envisioned. Environmentalists have also voiced concerns about NAFTA. Because Mexico has more lenient environmental protection laws than either the U.S. or Canada, there is a concern that U.S. and Canadian firms will relocate to Mexico to avoid the cost of protecting the environment. Finally, there is continued opposition in Mexico to NAFTA from those who fear a loss of national sovereignty. Mexican critics fear that NAFTA will allow their country to be dominated by U.S. and Canadian multinationals, and use Mexico as a low-cost assembly site, while keeping their higher-paying jobs in their own countries.


129.(p.292-293)Describe the effects of NAFTA after the first decade. What are the plans for possible enlargement of NAFTA?Studies of NAFTA's early impact suggest its initial effects were at best muted. The initial period after NAFTA took effect had little impact on trends that were already in place. Authors agree that NAFTA had only a marginal impact on the level of trade between the United States and Mexico. One study concluded that the impact on jobs in the United States was positive but very small. NAFTA is credited with helping to create the background for increased political stability in Mexico. A number of other Latin American countries have indicated their desire to eventually join NAFTA. The U.S. and Canada have currently adopted a "wait and see" approach. The Canadian, Mexican, and U.S. governments began talks in 1995 regarding Chile's possible entry into NAFTA.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-4Topic: Regional Economic Integration in the Americas130.(p.300)Explain how the creation of a single market through regional economic integration offers significant opportunities. Provide an example.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. For example, in Europe before 1992 the large French and Italian markets were among the most protected. These markets are now much more open to foreign competition in the form of both exports and direct investment. Nonetheless, to fully exploit such opportunities, it may pay non-EU firms to set up 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.

AACSB: Reflective thinkingBT: ComprehensionDifficulty: MediumLearning Objective: 8-5Topic: Focus on Managerial Implications

8-1

Chapter 08

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