International Economics, 6e (Gerber)
Chapter 14 The European Union: Many Markets into One
14.1 Introduction: The European Union
1) There are no questions for this section.
Topic: Introduction: The European Union
14.2 The Size of the European Market
1) Which of the following is NOT part of the European Union?
A) Luxembourg
B) Austria
C) Portugal
D) Greece
E) Switzerland
2) Which of the following nations DOES use the euro and participates in the Treaty on European
Union?
A) Sweden
B) Denmark
C) Portugal
D) The United Kingdom
E) Norway
3) Which nation is NOT one of the current members of the European Union?
A) Greece
B) Germany
C) Sweden
D) Norway
4) The European Union is the oldest, largest, and most ambitious integration agreement in the
world today.
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14.3 The European Union and Its Predecessors
1) Before the creation of the European Economic Community, there was the
A) European Economic Union.
B) European Coal and Steel Community.
C) European Union.
D) European Free Trade Area.
E) Single European Community.
2) The primary legislative branch of the European Union is called the
A) European Commission.
B) European Parliament.
C) European Court of Justice.
D) European Council of Ministers.
E) Council of the European Union.
3) The founding document of the European Economic Community, and the document that
continues to provide the basis for the European Union is the
A) Treaty of Brussels.
B) Delors Report.
C) Treaty of Rome.
D) Single European Treaty.
E) Maastricht Treaty.
4) According to the principle of subsidiarity, in which of the following areas should the authority
for making decisions be taken from national governments and given to the EU?
A) Pollution of a trans-national waterway
B) Limits on the hours retails stores are allowed to be open
C) Highway traffic laws
D) Recycling requirements on packaging
E) All of the above.
5) The principle of subsidiarity is a way to
A) divide power between local governments and unions.
B) provide support for industries in decline.
C) provide support for industries under pressure from foreign competition.
D) divide power between national governments and the EU.
E) divide EU tax money among the member countries.
6) Which of the following treaties/agreements would be associated with creating a free trade area
for the European Union?
A) Treaty of Rome
B) Single Europe Treaty
C) Delors Agreement
D) Treaty on European Union
E) Schengen Agreement
7) All the countries of the EU participate in the Schengen Agreement.
8) The roots of the European Union are in agreements within the coal and steel industries.
9) Subsidiarity requires nations to give up some of their national sovereignty.
10) Most cohesion funds in the EU budget go to the wealthier EU member nations.
11) What three sources of revenue finance the EU budget?
12) What are the two largest expenditure categories in the EU budget?
13) Members of which European Union institution are popularly elected?
14.4 Deepening and Widening the Community in the 1970s and 1980s
1) A narrow target zone exchange rate band (such as the EEC had until 1992) is most similar to
A) a flexible exchange rate system.
B) a single currency.
C) a fixed exchange rate system.
D) an undervalued currency.
E) a managed floating exchange rate.
2) The single most important factor in the 1992 crisis of the EMS was
A) ratification of the Single European Act.
B) the near failure of the Maastricht Treaty.
C) the fall in unemployment rates throughout the EEC.
D) German reunification efforts.
E) the outbreak of war in the former Yugoslavia.
3) A major reason for creating the European Monetary System was to
A) create a single currency.
B) unify banking laws and permit cross-border investment.
C) avoid competitive devaluations.
D) reduce the costs of changing currencies.
E) eliminate the need for central banks.
4) The currency crisis of 1992 caused France and a number of other countries to choose between
A) a single currency for the EU and keeping their own currency.
B) doing the right thing for their domestic economy and defending the exchange rate.
C) lowering interest rates and reducing unemployment.
D) competitive devaluations and falling unemployment.
E) the Maastricht Treaty and the Single European Act.
14.5 The Second Wave of Deepening: The Single European Act
1) With the full implementation of the Single European Act, the EU became a
A) common market.
B) free trade area.
C) customs union.
D) economic union.
E) None of the above.
2) Which of the following is the treaty that took the participating countries from a free trade area
to a common market?
A) The Treaty of Rome
B) The Maastricht Treaty
C) Single European Act
D) Treaty on European Union
3) The “Four Freedoms” are an important goal of the
A) Treaty of Rome.
B) Single European Act.
C) European Monetary System.
D) Maastricht Treaty.
E) European Free Trade Area.
4) The “Four Freedoms” do NOT include the right to
A) vote in local elections.
B) migrate within the EU.
C) write insurance policies throughout the EU.
D) open bank accounts anywhere in the EU.
E) move goods from one country to another inside the EU.
5) After implementation of the Single European Act, value added taxes in the EU were
A) completely harmonized.
B) unchanged.
C) partially harmonized with minimum and maximum permissible values set by the EU.
D) eliminated except on a few items in each country.
E) cut in half in order to increase the role of corporate taxes.
6) When did the European Union become a common market?
7) Which agreement removes customs and passport controls at the common borders of many EU
countries?
14.6 The Third Wave of Deepening: The Maastricht Treaty
1) The single currency project in the EU will be most successful if European labor is relatively
A) immobile.
B) immobile and business cycles are not synchronized.
C) mobile and business cycles are synchronized.
D) mobile and business cycles are not synchronized.
E) mobile.
2) One drawback to a single currency is that
A) the exchange rate is more volatile.
B) bond markets are larger and therefore harder to control.
C) exporters and importers have fewer choices about how they will receive and make payments.
D) individual nations cannot use monetary policy to stabilize the economy.
E) foreign currency is more expensive.
3) As Europe explored monetary union, evidence to date suggests that increased variability in
exchange rates
A) reduces foreign trade and investment.
B) increases foreign trade and investment.
C) does not seem to have an impact on foreign trade and investment.
D) hurts foreign investment but not trade.
E) hurts foreign trade but not investment.
4) The European Union became an economic union with the implementation of which treaty?
A) Treaty of Rome
B) Single Europe Treaty
C) Delor’s Agreement
D) Treaty on European Union
E) Schengen Agreement
5) Each of the 15 members of the European Union that joined before May 2004 use the euro as
their currency.
6) Other nations had tried economic union in the past, and since adopting a common currency
had shown economic benefits for them, the nations of Europe decided to try it too.
7) Adopting the Single European Act had broad popular support; the Treaty on European Union
was more controversial.
8) The Single European Act was expected to create economic benefits by reducing the costs and
risks of currency market transactions.
9) The Maastricht Treaty eliminated passport controls at borders with the European Union.
10) Describe the history and consequent deepening as the European Union developed. Which
treaties created which level of economic integration? Do countries have the ability to participate
in some levels of integration and not others? Give specific examples.
11) Which EU institution has played a significant role is responding to the economic crisis that
began in 2007?
14.7 Widening the European Union
1) The first and biggest problem the EU faces in its expansion to the east is
A) the reform of its agricultural subsidy programs.
B) the lack of democracy in the countries that are most likely to become members.
C) the unwillingness of the new members to adopt EU rules.
D) the lack of market economies in the countries that are most likely to become members.
E) the unwillingness of citizens in the new member countries to migrate to higher income
countries.
2) The European Union membership criteria includes all of the following EXCEPT
A) the country must participate in free trade with all of its goods and services.
B) the country must follow market-based economics.
C) the country must formally adopt the EU-wide rules such as technical standards, environmental
inspections, banking supervision, etc.
D) the country must be a stable functioning democracy.
E) None of the above.
3) Which of the following is NOT one of the major problems with expanding the EU?
A) Expansion has become a more difficult task because of the unwillingness of the eastern and
central European countries to change.
B) The programs that target EU expenditures could be stretched thin by the addition of countries
with much lower incomes.
C) The governance structure of the EU had to be changed to avoid becoming unwieldy and
ineffective.
D) The EU may be faced with an unstable eastern border with huge worker migratory flows if
the transition economies fail.
E) Most central and eastern European countries have large agricultural sectors and extending
subsidies to these countries would entail an enormous flow of funds given the Common
Agricultural Policy.
4) The fact that 10 additional nations joined the European Union in May 2004 is an example of
deepening.
5) There is no possibility of further widening of the European Union.
6) Emigration is when people leave a country because of supply push factors.
7) Describe the criteria for membership in the European Union. Given the criteria, what are
some of the major challenges with expanding the EU eastward? What are the potential problems
of Turkey joining the EU?
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14.8 The Demographic Challenge of the Future
1) As populations age, public spending tends to increase.
2) What challenges does the European Union face in the short, medium, and long run?
3) According to your text, what is the major long-run issue facing the European Union?