Chapter 9: Regional Economic Integration

Trade agreements are sometimes called “double-edged swords” because they allow a nation’s companies to seek new markets abroad and

• reduce competition in the domestic market

• increase national sovereignty among member nations

• allow foreign companies to compete in the domestic market

• increase business competition among nonmember nations

Economic integration by which countries remove all barriers to trade among themselves but each country determines its own barriers against nonmembers is called a(n)

• common market

• customs union

• free trade area

• economic union

The feature that a customs union adds to a free trade area is that members agree to

• coordinate certain key aspects of the economic policies

• treat trade with all nonmember nations in a similar manner

• set their own individual policies for trade with nonmembers

• the free movement of labor and capital

Which of the following statements supports the formation of a common market?

• Trade can shift away from firms in nonmember nations and reward less efficient producers in member nations

• Individuals have greater mobility to relocate and find meaningful work

• It helps members coordinate their national economic policies

• The main end goal is to remove barriers to merchandise trade

The broader the coverage of a trade agreement and the larger the region to be integrated,

• the less likely it is to expand in size and scope in the future

• the more likely it is to be unfair to nonmember nations

• the greater the odds that it will end in failure

• the greater the potential for productivity gains and economic growth

The movement of trade away from nonmember nations and toward nations participating in a trade agreement is called

• trade integration

• trade diversion

• trade creation

• a free trade area

One argument made against regional economic integration is that it

• increases national sovereignty with which individual members must wrestle

• generates increased product choice and consumption possibilities for member nations

• can cause lost jobs in some nations as labor-intensive work moves to members having lower-cost labor

• diverts trade toward the most efficient producers in nonmember nations

Which of the following two challenges did Europe face after the Second World War?

• (1) Pass the Single European Act; (2) Reorganize for enlargement

• (1) Produce more coal and metals; (2) Expand its membership

• (1) Rebuild and avoid conflict; (2) Compete with the United States

• (1) Rebuild its single currency; (2) Compete with the US dollar

Which of the following is the name for the plan that established the European Union’s central bank and currency?

• Single European Act

• Copenhagen Criteria

• European monetary union

• European Central Bank

Which of the following is a management implication of the European Union currency, the euro?

• The euro increases potential losses from shifting exchange rates

• The euro obscures prices of products between markets

• The euro complicates the work of the European Central Bank

• The euro eliminates the need to exchange EU member currencies