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.