4.4 Economic Integration

What is a monetary union?

• situation that involves a common currency, such as the Euro as well as universal monetary policy.

• an agreement between two nations or trading groups that gives each party favoured trade status.

• an agreement between a number nations or trading groups that give each party favoured trade trade status.

• an agreement between two or more countries to lower trade barriers between each other on particular products

What is a bilateral agreement?

• situation that involves a common currency, such as the Euro as well as universal monetary policy.

• an agreement between two nations or trading groups that gives each party favoured trade status.

• an agreement between a number nations or trading groups that give each party favoured trade trade status.

• an agreement between two or more countries to lower trade barriers between each other on particular products

What is a multilateral agreement?

• situation that involves a common currency, such as the Euro as well as universal monetary policy.

• an agreement between two nations or trading groups that gives each party favoured trade status.

• an agreement between a number nations or trading groups that give each party favoured trade trade status.

• an agreement between two or more countries to lower trade barriers between each other on particular products

What is a preferential trade agreement?

• situation that involves a common currency, such as the Euro as well as universal monetary policy.

• an agreement between two nations or trading groups that gives each party favoured trade status.

• an agreement between a number nations or trading groups that give each party favoured trade trade status.

• an agreement between two or more countries to lower trade barriers between each other on particular products

What is NOT an ADVANTAGE of a monetary union?

• Single currency eliminates exchange risk uncertainty

• Monetary policy can no longer be used as a tool of economic policy

• Single currency encourages price transparency

• Single currency eliminates transaction costs

• Single currency promotes higher level of inward investment

What is NOT an DISADVANTAGE of a monetary union?

• Exchange rate can no longer be used as adjustment tool

• Monetary policy can no longer be used as a tool of economic policy

• Monetary policy impacts on each country differently

• Fiscal policy is constrained by different countries aims

• Single currency promotes higher level of inward investment

Due to the formation of monetary union, economic policy makers loss the ability to....?

• Use monetary policy as tool as price stability is key objective

• Pursue their own fiscal policy

• Devalue or revalue exchange rate

• Set their own taxation rate

What is the difference between a customs union and common market?

• Common market eliminates trade barriers but they still exist in customs union

• A common market eliminates all restrictions on movement of any factors of production, but these restrictions remain in customs union

• Customs union adopts common trade policy towards all non-member countries whereas a common market does not

• A customs union has 2 members whilst common market has more than 2

How does the formation of a trading bloc result in increased competition?

• High trade barriers, means that domestic producers become more competitive with the world as they are supported by domestic government

• With no barriers, imports increase, forcing domestic producers to compete with low cost countries

What are disadvantages of FTA?

• Product may be imported into FTA by country with lowest external barriers and sold to countries with FTA that have higher barriers

• Countries can not pursue their own monetary policy

• Each country has its own individual barriers towards non-members

• Countries no longer set their own trade policies as it is agreed upon by member countries