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.