Economic Integration Assessment Review

Say Italy is suffering a downtown in economic activity, but the rest of the countries in the monetary union are booming. The central bank opts to raise interest rates, what impact does this have on Italy?

• The higher interest rates negatively impact Italians by discouraging borrowing.

• The higher interest rates positively impact Italians by encouraging them to borrow

• This has no impact on Italy

Which of the following is a disadvantage of a monetary union?

• Price Transparency

• Higher levels of exchange rate risk and uncertainty

• Lack of shared fiscal policy

• Increased transaction costs

Assume Italy is suffering an economic downturn, while the other countries in the EU are experiencing a boom. The central bank decides to increase interest rates. What is the impact on Italy's AD/AS?

• There is no impact on Italy's AD/AS

• Overall spending will decrease due to the higher cost of borrowing further deepening the recession

• Spending will increase domestically due to the higher interest rates

The previous question/example represents

• An advantage of a monetary union

• A disadvantage of a monetary union

This form of economic integration involves diminished trade barriers, common external trade barriers and free movement of the FOP

• A free trade area

• A common market

• monetary union

• custom union

Which of the following is an advantage of economic integration

• The loss of inefficient domestic firms

• More efficient allocation of resources

• Increased tariff revenue

• Potential losses from trade diversion

Preferential trade agreements

• Establish similar tax law

• Impose common external tariffs

• Aim for later monetary union

• Provide favoured access to specific goods to members

The process of increasing unification and interdependence of countries

• Trade creation

• Economic integration

• A free trade agreement

• Economic union

Which of the following statements is correct?

• In a free trade area, member nations harmonize their monetary and fiscal policies

• In a custom union, member nations apply a uniform external tariff

• Within a customs union there is unrestricted factor movement

• A customs union is a higher form of economic integration than a common market

A common market is less integrated than a free trade area

• True

• False