International Economics, 7e (Gerber)
Chapter 14 The European Union: Many Markets into One
14.1 Introduction: The European Union
1) Originally, the European Union was called
A) the European Economic Partnership.
B) the European Economic Community.
C) the European Community.
D) the Common Market.
2) The original European Economic Community
A) was a free trade area.
B) had 12 countries.
C) had a common language.
D) was a customs union.
3) The Single European Act
A) created a common currency.
B) created a free trade area.
C) created a customs union.
D) created a common market for capital and labor.
4) The common currency of the EU, the euro, was created in
A) 1985.
B) 1992.
C) 1999.
D) 2004.
5) The European Union is the oldest, largest, and most ambitious integration agreement in the
world today.
6) Briefly describe 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 participate in the Treaty on European
Union?
A) Sweden
B) Portugal
C) The United Kingdom
D) 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 largest country in the EU is
A) Germany.
B) France.
C) the United Kingdom.
D) Italy.
5) All countries in the European Union use the euro as their currency.
6) The combined EU market is far larger than the NAFTA market in terms of GDP and
population.
7) The majority of countries in the EU are relatively small.
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.
2) The primary legislative branch of the European Union is called the
A) European Commission.
B) European Parliament.
C) European Council of Ministers.
D) 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) Treaty of Rome.
C) Single European Treaty.
D) 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
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.
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) Schengen Agreement
7) The principle of subsidiarity states that
A) individual countries do not have to give up individual sovereignty for the good of the union.
B) the union only has the authority to deal with issues best handled by international action.
C) the union is the ultimate arbiter of all European issues.
D) the union has no authority within countries.
8) Which of the following does NOT finance the EU budget?
A) A European income tax
B) Tariffs on goods entering the EU
C) A share of national value added taxes
D) A contribution from each country based on the size of its economy
9) The roots of the European Union are in agreements within the coal and steel industries.
10) Subsidiarity requires nations to give up some of their national sovereignty.
11) Most cohesion funds in the EU budget go to the wealthier EU member nations.
12) Agricultural support and rural development programs account for nearly half of the EU
budget.
13) Cohesion funds are used to make EU countries more culturally similar.
14) What three sources of revenue finance the EU budget?
15) What are the two largest expenditure categories in the EU budget?
16) 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) 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) German reunification efforts.
D) 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) 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.
5) EU widening refers to
A) legislation that restricts the sovereignty of individual countries.
B) activities that cause increased levels of integration in the national economies.
C) extending the boundaries of the EU to include new members.
D) adding additional countries into the single currency area.
6) EU deepening refers to
A) legislation that restricts the sovereignty of individual countries.
B) activities that cause increased levels of integration in the national economies.
C) extending the boundaries of the EU to include new members.
D) adding additional countries into the single currency area.
7) The purpose of creating the European exchange rate mechanism (ERM) was to
A) base trade and investment on comparative advantage.
B) prevent currencies from appreciating.
C) create barriers to trade.
D) let exchange rates float more freely.
8) When Germany increased fiscal spending and raised interest rates in the early 1990s,
A) economic growth increased throughout Europe.
B) other countries were forced to raise interest rates to stay in the ERM.
C) it was unsuccessful in supporting East Germany.
D) it forced other countries to devalue their currencies.
9) Before European currencies were linked, countries would competitively devalue their
currencies.
10) The European Currency Unit (ECU) acted as a means of payment.
11) The United Kingdom dropped out of the ERM to avoid worsening a recession.
12) In the face of capital outflow, countries had to lower interest rates to stay in the ERM.
13) Describe why the European exchange rate mechanism (ERM) was founded and how it
worked.
14) Explain why the European exchange rate mechanism (ERM) ran into problems in the 1990s.
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(n)
A) common market.
B) free trade area.
C) customs union.
D) economic union.
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) The Single European Act
D) The Treaty on European Union