Chapter 09 Regional Economic Integration
True / False Questions
1.
Regional economic integration involves agreements among countries in a
geographic region to reduce, and ultimately remove, tariff and nontariff
barriers to the free flow of goods, services, and factors of production
between each other.
TRUE
By regional economic integration we mean agreements among countries in
a geographic region to reduce, and ultimately remove, tariff and nontariff
barriers to the free flow of goods, services, and factors of production
between each other.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-01 Describe the different levels of regional economic integration.
Topic: Introduction
2.
The movement toward regional economic integration been most successful
in Asia.
FALSE
Nowhere has the movement toward regional economic integration been
more successful than in Europe.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-01 Describe the different levels of regional economic integration.
Topic: Introduction
3.
In a customs union, trade barriers are eliminated among member countries,
and each country maintains its own external trade polices with nonmember
countries.
FALSE
A customs union eliminates trade barriers between member countries and
adopts a common external trade policy.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-01 Describe the different levels of regional economic integration.
Topic: Levels of Economic Integration
4.
A common market has no barriers to trade between member countries,
includes a common external trade policy, and allows factors of production to
move freely between members.
TRUE
A common market, has no barriers to trade between member countries,
includes a common external trade policy, and allows factors of production to
move freely between members.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 09-01 Describe the different levels of regional economic integration.
Topic: Levels of Economic Integration
5.
A common market entails even closer economic integration and cooperation
than an economic union.
FALSE
An economic union entails even closer economic integration and
cooperation than a common market.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 09-01 Describe the different levels of regional economic integration.
Topic: Levels of Economic Integration
6.
The European Union is an example of a perfect economic union.
FALSE
The EU is an economic union, although an imperfect one.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 09-01 Describe the different levels of regional economic integration.
Topic: Levels of Economic Integration
7.
Coordination and policy harmonization problems are largely a function of
the number of countries that seek agreement.
TRUE
The greater the number of countries involved, the more perspectives that
must be reconciled, and the harder it will be to reach agreement.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 09-02 Understand the economic and political arguments for regional economic integration.
Topic: Levels of Economic Integration
8.
Linking neighboring countries economically and making them
interdependent creates incentives to increase political cooperation as well.
TRUE
Linking neighboring economies and making them increasingly dependent on
each other creates incentives for political cooperation between the
neighboring states and reduces the potential for violent conflict.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 09-02 Understand the economic and political arguments for regional economic integration.
Topic: The Case for Regional Integration
9.
Because of the fact that everyone benefits from economic integration, it is
easy to achieve and sustain.
FALSE
While a nation as a whole may benefit significantly from a regional free
trade agreement, certain groups may lose.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 09-02 Understand the economic and political arguments for regional economic integration.
Topic: The Case for Regional Integration
10.
A major impediment to economic integration is the loss of sovereignty it
entails.
TRUE
A major impediment to integration arises from concerns over national
sovereignty.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 09-02 Understand the economic and political arguments for regional economic integration.
Topic: The Case for Regional Integration
11.
Trade diversion occurs when higher-cost external producers are replaced by
lower-cost external producers within the free trade area.
FALSE
Trade creation occurs when higher-cost external producers are replaced by
lower-cost external producers within the free trade area.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 09-03 Understand the economic and political arguments against regional economic integration.
Topic: The Case Against Regional Integration
12.
In theory, WTO rules should ensure that a free trade agreement results in
trade diversion.
FALSE
In theory, WTO rules should ensure that a free trade agreement does not
result in trade diversion.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-03 Understand the economic and political arguments against regional economic integration.
Topic: The Case Against Regional Integration
13.
A regional free trade agreement will benefit the world only when the amount
of trade it creates exceeds the amount of trade it diverts.
TRUE
A regional free trade agreement will benefit the world only if the amount of
trade it creates exceeds the amount it diverts.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 09-03 Understand the economic and political arguments against regional economic integration.
Topic: The Case Against Regional Integration
14.
There are two main trading blocs in Europe, the European Union and the
European Free Trade Association.
TRUE
Europe has two trade blocs—the European Union and the European Free
Trade Association.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
Topic: Regional Economic Integration in Europe
15.
The Treaty of Rome, signed in 1957, established the European Free Trade
Association.
FALSE
With the signing of the Treaty of Rome in 1957, the European Community
was established.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
Topic: Regional Economic Integration in Europe
16.
A central reason for the establishment of the EU was the devastation of
Western Europe during two world wars and the desire for a lasting peace.
TRUE
The European Union (EU) is the product of two political factors: (1) the
devastation of Western Europe during two world wars and the desire for a
lasting peace, and (2) the European nations’ desire to hold their own on the
world’s political and economic stage.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world‘s most important regional
economic agreements.
Topic: Regional Economic Integration in Europe
17.
The Council of the European Union is responsible for proposing EU
legislation, implementing it, and monitoring compliance with EU laws by
member states.
FALSE
The European Commission is responsible for proposing EU legislation,
implementing it, and monitoring compliance with EU laws by member
states.
economic agreements.
Topic: Regional Economic Integration in Europe
18.
The ultimate controlling unit within the EU is the European Council.
TRUE
The European Council represents the interests of member states. It is
clearly the ultimate controlling authority.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
Topic: Regional Economic Integration in Europe
19.
The European Parliament is primarily a consultative rather than legislative
body.
TRUE
The European Parliament, which now has 732 members, is directly elected
by the populations of the member states. It is primarily a consultative rather
than legislative body.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
20.
The judges of the European Court of Justice are required to act as
representatives of national interests, rather than as independent officials.
FALSE
The judges are required to act as independent officials, rather than as
representatives of national interests.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world‘s most important regional
economic agreements.
Topic: Regional Economic Integration in Europe
21.
The establishment of the euro required participating countries to give up
their monetary policy.
TRUE
Establishing the euro required participating national governments not only
to give up their own currencies, but also to give up control over monetary
policy.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
Topic: Regional Economic Integration in Europe
22.
The Single European Act committed EU countries to adopting a common
currency by January 1, 1999.
FALSE
In December 1991, EC members signed a treaty (the Maastricht Treaty) that
committed them to adopting a common currency by January 1, 1999.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world‘s most important regional
economic agreements.
Topic: Regional Economic Integration in Europe
23.
Establishment of the euro created the largest currency zone in the world,
replacing the position the U.S. dollar had held for decades.
FALSE
By adopting the euro, the EU has created the second most widely traded
currency in the world after that of the U.S. dollar.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
Topic: Regional Economic Integration in Europe
24.
Great Britain, Sweden, and France have led the push toward adopting the
euro.
FALSE
Three long-term EU members, Great Britain, Denmark, and Sweden, are still
sitting on the sidelines. They have not adopted the euro.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
Topic: Regional Economic Integration in Europe
25.
A key benefit resulting from the adoption of the euro is the ability to
compare prices across member markets.
TRUE
The adoption of a common currency makes it easier to compare prices
across Europe. This has been increasing competition because it has
become easier for consumers to shop around.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
Topic: Regional Economic Integration in Europe
26.
The implied loss of national sovereignty to the ECB underlies the decision
by Great Britain, Denmark, and Sweden to stay out of the euro zone for
now.
TRUE
The implied loss of national sovereignty to the ECB underlies the decision
by Great Britain, Denmark, and Sweden to stay out of the euro zone for
now.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
Topic: Regional Economic Integration in Europe
27.
Since its establishment, the euro has had a stable trading history.
FALSE
Since its establishment January 1, 1999, the euro has had a volatile trading
history against the world’s major currency, the U.S. dollar.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
Topic: Regional Economic Integration in Europe
28.
On average, studies indicate that NAFTA’s overall impact has been small
but positive.
TRUE
Studies of NAFTA’s impact suggest its initial effects were at best muted,
and both advocates and detractors may have been guilty of exaggeration.
On average, studies indicate that NAFTA’s overall impact has been small
but positive.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
Topic: Regional Economic Integration in the Americas
29.
The governments of both Canada and the United States are keen on adding
other Latin American countries to NAFTA.
FALSE
A number of other Latin American countries have indicated their desire to
eventually join NAFTA. The governments of both Canada and the United
States are adopting a wait-and-see attitude with regard to most countries.
AACSB: Analytic
Blooms: Remember
30.
The Andean Pact is a highly successful common market modeled after the
EU.
FALSE
The Andean Pact was largely based on the EU model, but was far less
successful at achieving its stated goals.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
Topic: Regional Economic Integration in the Americas
31.
According to Alexander Yeats, the trade diversion effects of Mercosur
outweigh its trade creation effects.
TRUE
Alexander Yeats, a critic of the Mercosur, points out that the trade diversion
effects of Mercosur outweigh its trade creation effects.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
Topic: Regional Economic Integration in the Americas
32.
The Free Trade Area of the Americas that was established in 2005 has thus
far proven to be a success.
FALSE
Currently, however, FTAA is very much a work in progress, and the progress
has been slow.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
Topic: Regional Economic Integration in the Americas
33.
The bulk of intra-ASEAN trade consisted of goods whose tariffs had been
reduced through an ASEAN preferential trade arrangement.
TRUE
Until recently, only 5 percent of intra-ASEAN trade consisted of goods
whose tariffs had been reduced through an ASEAN preferential trade
arrangement.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
Topic: Regional Economic Integration Elsewhere
34.
The Asia-Pacific Economic Cooperation was established to increase
multinational cooperation in view of the economic rise of the Pacific nations
and the growing interdependence within the region.
TRUE
The stated aim of APEC is to increase multilateral cooperation in view of
the economic rise of the Pacific nations and the growing interdependence
within the region.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
Topic: Regional Economic Integration Elsewhere
35.
Political turmoil in several African nations has persistently impeded any
meaningful progress in economic integration.
TRUE
Significant political turmoil in several African nations has persistently
impeded any meaningful progress.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
36.
The East African Community (EAC) has been a successful integration effort
in Africa during the last three decades.
FALSE
In early 2001, Kenya, Uganda, and Tanzania, member states of the East
African Community (EAC), committed themselves to relaunching their bloc,
24 years after it collapsed.
AACSB: Analytic
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 09-04 Explain the history; current scope; and future prospects of the world’s most important regional
economic agreements.
Topic: Regional Economic Integration Elsewhere
37.
To exploit the opportunities presented by the EU, non-EU firms must
establish EU subsidiaries.
TRUE
Many major U.S. firms have long had subsidiaries in Europe. Those that do
not would be advised to consider establishing them now, lest they run the
risk of being shut out of the EU by nontariff barriers.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 09-05 Understand the implications for business that are inherent in regional economic integration
agreements.
38.
A benefit to companies of economic integration is the opportunity to
centralize their production and reduce costs.
TRUE
Rather than producing a product in each of the 27 EU countries or the 3
NAFTA countries, a firm may be able to serve the whole EU or North
American market from a single location.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 09-05 Understand the implications for business that are inherent in regional economic integration
agreements.
Topic: Implications for Managers
39.
Once barriers to trade and investment are removed, companies can treat a
group of integrated countries like the EU as a single market and produce
standardized products for it.
FALSE
Even after the removal of barriers to trade and investment, enduring
differences in culture and competitive practices often limit the ability of
companies to realize cost economies by centralizing production in key
locations and producing a standardized product for a single multiple-
country market.