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Student name:__________
1) Discuss the trend toward increased regional economic integration.
2) Compare and contrast a free trade area and a common market. Provide examples.
3) What is the political case for integration? How did political arguments influence the
establishment of the European Union?
4) What are impediments to countries integrating?
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5) What prompted the formation of the European Union?
6) What is the Single European Act? What was the effect of the Single European Act on the
EU economy? Did the Single European Act achieve its goals?
7) How will EU countries benefit from the establishment of a single currency? What, if any,
are the costs of a single currency?
8) Explain the North American Free Trade Agreement and then debate its ratification.
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9) Explain how Mercosur has changed over time. What are the implications of these
changes?
10) What is ASEAN? What is its basic goal? How successful is ASEAN?
11) Describe the state of economic integration in Africa. What factors have hindered the
process?
12) Discuss the opportunities arising from the creation of the EU for international businesses.
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13) Describe the disadvantages of economic integration for international businesses. How can
firms protect themselves from these threats?
14) From least integrated to most integrated, the levels of economic integration are a
A) common market, a free trade area, an economic union, a customs union, and a
political union.
B) free trade area, a customs union, a common market, an economic union, and a
political union.
C) customs union, a free trade area, a common market, a political union, and an
economic union.
D) common market, an economic union, a customs union, a free trade area, and a
political union.
15) Which level of economic integration eliminates trade barriers between member countries
and adopts a common external trade policy?
A) political union
B) customs union
C) common market
D) economic union
16) Which feature of a common market differentiates it from a customs union?
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A) requires harmonization of members’ tax rates
B) has a common currency
C) holds a common external trade policy toward nonmembers
D) allows factors of production to move freely among members
17) ________ involves the free flow of products and factors of production between member
countries, the adoption of a common external trade policy, a common currency, harmonization of
members’ tax rates, and a common monetary and fiscal policy.
A) An economic union
B) A common market
C) A customs union
D) A free trade area
18) Which is the most enduring free trade area in the world?
A) Central America Free Trade Association (CAFTA)
B) European Free Trade Association (EFTA)
C) Association of Southeast Asian Nations (ASEAN)
D) North American Free Trade Association (NAFTA)
19) Which feature of an economic union differentiates it from a common market?
A) free flow of products and factors of production between member countries
B) a common monetary and fiscal policy
C) a common external trade policy toward nonmembers
D) ability of factors of production to move freely between members
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20) Which of the following is a reason the European Union is considered an imperfect
economic union?
A) Factors of production are not allowed to move freely between member countries.
B) Not all members of the union have adopted the euro.
C) Almost all markets are heavily regulated.
D) Products and services are not allowed to move freely between member countries.
21) The move toward economic union raises the issue of how to make a coordinating
bureaucracy accountable to the citizens of member nations. Which of the following offers a
solution to this problem?
A) a common market
B) a free trade area
C) a customs union
D) a political union
22) ________ has no barriers to trade between member countries, includes a common
external trade policy, and allows factors of production to move freely between members.
A) An economic union
B) A common market
C) A customs union
D) A full political union
23) ________ entails even closer economic integration and cooperation than a common
market.
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A) A customs union
B) A free trade area
C) An economic union
D) A political union
24) Country X and Country Y reach an agreement to boost bilateral trade. They agree to
remove all barriers to the trade of goods and services. They, however, are free to determine their
own trade policies with regard to nonmembers. Which level of economic integration is this an
example of?
A) a customs union
B) an economic union
C) a common market
D) a free trade area
25) Which feature of a customs union differentiates it from a free trade area?
A) harmonization of members’ tax rates
B) a common currency
C) a common external trade policy toward nonmembers
D) ability of factors of production to move freely between members
26) Three countries agree to remove barriers to trade between member countries and adopt a
common external trade policy toward nonmembers. They also agree to allow people and other
factors of production to move freely across their borders. Which level of economic integration is
this an example of?
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A) bonded market
B) customs union
C) free trade area
D) common market
27) _____ eliminates trade barriers between member nations, adopts a common external
policy, and permits factors of production to move freely between member countries but it also
requires a common currency, harmonization of members’ tax rates, and a common monetary and
fiscal policy.
A) A free trade area
B) A common market
C) An economic union
D) A customs union
28) Linking neighboring countries economically and making them interdependent
A) increases the potential for violent conflict.
B) creates increased political tensions.
C) leads to dilution of cultures.
D) creates incentives to increase political cooperation as well.
29) Why doesn’t Great Britain use the euro as its national currency?
A) It would have to convert its economic structure to the euro.
B) It would have to relinquish control of its monetary policy to the EU.
C) It would have to change its financial markets operations.
D) It would have to obtain approval from the U.S. Federal Reserve.
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30) A political benefit of economic integration is that it
A) enables participants to achieve gains from the free flow of trade.
B) enables participants to achieve gains from the free flow of investment.
C) allows countries to specialize in the production of goods and services that they can
produce most efficiently.
D) reduces the potential for violent conflict and war.
31) Which of the following explains why economic integration has never been easy to
achieve or sustain, despite the strong economic and political arguments in support?
A) No country has shown significant improvement because of economic integration.
B) Countries fear a reduction of their political weight in the world because of economic
integration.
C) Linking neighboring economies and making them increasingly dependent on each
other creates little incentive for political cooperation.
D) While a nation as a whole may benefit significantly, certain groups may lose.
32) _____ occurs when high-cost domestic producers are replaced by low-cost producers
within the free trade area.
A) Trade deficit
B) Trade diversion
C) Trade creation
D) Trade distortion
33) Which of the following occurs when lower-cost external suppliers are replaced by higher-
cost suppliers within the free trade area?
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A) efficiency gain
B) trade diversion
C) trade deficit
D) trade creation
34) Country A and Country B entered into a free trade agreement recently. After this,
Country A starts importing heavy machinery from Country B. Country A previously imported
such machinery at lower rates from another country. Which of the following has occurred in this
scenario?
A) trade creation
B) efficiency gain
C) trade deficit
D) trade diversion
35) To ensure that a free trade agreement does not result in trade diversion, which of the
following has to come within the scope of the WTO?
A) nontariff barriers
B) services
C) energy markets
D) tax rates
36) _____ may also occur when higher-cost external producers are replaced by lower-cost
external producers within the free trade area.
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A) Trade creation
B) A customs union
C) Trade diversion
D) A common market
37) Which of the following is a concern of some economists regarding regional integration?
A) The benefits of regional integration are determined by the extent of trade diversion.
B) The benefits of regional integration may have been oversold, while the costs have
been ignored.
C) A regional free trade agreement will benefit the world only if the amount of trade it
diverts exceeds the amount it creates.
D) The costs of regional integration will be exceedingly high with little chance that the
benefits will outweigh the costs.
38) In theory, WTO rules should ensure that a free trade agreement
A) does not result in trade creation.
B) does not result in trade diversion.
C) results in trade creation.
D) results in trade diversion.
39) The European Community was established by the
A) Treaty of Rome signed in 1957.
B) Maastricht Treaty signed in 1992.
C) Maastricht Treaty of 1994.
D) Single European Act of 1987.
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40) The _____ is responsible for proposing EU legislation, implementing it, and monitoring
compliance with EU laws by member states.
A) European Parliament
B) European Commission
C) Council of the European Union
D) Court of Justice
41) Why is the European Council said to be the ultimate controlling authority within the EU?
A) It is responsible for implementing EU legislation and monitoring compliance with
EU laws by member states.
B) Its role in setting competition policy is becoming increasingly important to business.
C) It has the right to vote on the appointment of commissioners.
D) Draft legislation from the commission can become EU law only if the council agrees.
42) Which of the following is directly elected by the populations of the member states and is
primarily a consultative rather than legislative body?
A) the European Parliament
B) the European Commission
C) the Council of the European Union
D) the Court of Justice
43) Which of the following was the outcome of the Treaty of Lisbon signed in 2007?
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A) It established the European Community.
B) It resulted in the adoption of the euro.
C) It changed the name of the European Community to the European Union.
D) It increased the power of the European Parliament.
44) Which of the following observations pertaining to the EU’s Court of Justice is correct?
A) It is composed of two judges from each country.
B) It is the supreme appeals court for EU law.
C) Its judges are required to act as representatives of national interests.
D) A member country can bring other members to the court for failing to meet EU treaty
obligations only with the support of two other uninvolved EU countries.
45) Which of the following observations is true of the euro?
A) It is used by all member states of the European Union.
B) While recommended, it is not required that participating countries give up their own
currencies.
C) It required participating countries to give up control over monetary policy.
D) By adopting it, the EU created the most widely traded currency in the world.
46) Which treaty, signed in February 1992, committed EC members to adopting a common
currency by January 1, 1999?
A) the Maastricht Treaty
B) the Treaty of Rome
C) the Single European Act
D) the Treaty of Lisbon
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47) Which of the following is seen as a benefit of the euro?
A) governments gaining greater control over their monetary policies
B) reduced competition in most industries
C) zero interest expense for businesses
D) lower foreign exchange and hedging costs as well as currency volatility risk
48) Which of the following is seen as a disadvantage of the euro?
A) higher foreign exchange and hedging costs
B) national authorities losing control over monetary policy
C) difficulty comparing prices across Europe
D) undermining the development of a pan-European capital market
49) In ____, 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.
A) an optimal currency area
B) a unified economic area
C) a uniform currency zone
D) a monetary zone
50) Which of the following was required for new applicants to qualify for EU membership?
A) minimum economy size of €1 trillion
B) nationalization of private assets
C) deregulation of markets
D) sustained GDP growth of 10 percent for five years
51) Which of the following is seen to be a consequence of the expansion of the EU from 15
nations to 28 nations?
A) delays in decision-making processes
B) elimination of the sovereign debt crisis
C) euro becoming the most traded currency in the world
D) huge initial impact on the overall economic welfare
52) Which of the following is a reason Turkey is not yet a member of the EU?
A) Only about 10 percent of Turkey’s international trade is with the EU.
B) There are concerns over human rights issues in the country.
C) The country has yet to form a customs union with the EU.
D) Turkey has a weak economy.
53) How does the NAFTA seem to increase the international competitiveness of U.S. and
Canadian firms?
A) It gives them access to scarce natural resources hitherto unavailable.
B) It increases tariff barriers making the North American market less attractive to Asian
companies.
C) It allows them to take advantage of lower labor costs in Mexico.
D) It gives them production bases in South American markets such as Brazil and
Argentina.