Deck 9: Regional Trade Pacts Give the Mexican Auto Industry an Edge

Question 1

A major impediment to economic integration is the loss of sovereignty it entails.

Answer 1

True
Explanation: A major impediment to integration arises from concerns over national sovereignty.

Question 2

The Council of the European Union is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states.

Answer 2

False
Explanation: The European Commission is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states.

Question 3

The Treaty of Rome, signed in 1957, established the European Free Trade Association.

Answer 3

False
Explanation: With the signing of the Treaty of Rome in 1957, the European Community was established.

Question 4

Establishment of the euro created the largest currency zone in the world, replacing the position the U.S. dollar had held for decades.

Question 5

The Single European Act committed EU countries to adopting a common currency by January 1, 1999.

Question 6

A regional free trade agreement will benefit the world only when the amount of trade it creates exceeds the amount of trade it diverts.

Question 7

The governments of both Canada and the United States are keen on adding other Latin American countries to NAFTA.

Question 8

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.

Question 9

The judges of the European Court of Justice are required to act as representatives of national interests, rather than as independent officials.

Question 10

In a customs union, trade barriers are eliminated among member countries, and each country maintains its own external trade polices with nonmember countries.

Question 11

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.

Question 12

Since its establishment, the euro has had a stable trading history.

Question 13

The European Union is an example of a perfect economic union.

Question 14

A key benefit resulting from the adoption of the euro is the ability to compare prices across member markets.

Question 15

The Free Trade Area of the Americas that was established in 2005 has thus far proven to be a success.

Question 16

The bulk of intra-ASEAN trade consisted of goods whose tariffs had been reduced through an ASEAN preferential trade arrangement.

Question 17

The implied loss of national sovereignty to the European Central Bank (ECB) underlies the decision by Great Britain, Denmark, and Sweden to stay out of the euro zone for now.

Question 18

The Andean Pact is a highly successful common market modeled after the EU.

Question 19

Because of the fact that everyone benefits from economic integration, it is easy to achieve and sustain.

Question 20

Coordination and policy harmonization problems are largely a function of the number of countries that seek agreement.

Question 21

The most recent attempt to reenergize the free trade movement in Africa occurred in early 2001, when _____, Uganda, and Tanzania, member states of the East African Community (EAC), committed themselves to relaunching their bloc, 24 years after it collapsed.

A) Sudan
B) Ethiopia
C) Kenya
D) Somalia

Question 22

The ultimate controlling unit within the EU is the _____.

A) European Commission
B) European Parliament
C) Court of Justice
D) Council of the European Union

Question 23

The _____ is primarily a consultative rather than legislative body.

A) European Parliament
B) Court of Justice
C) Council of the European Union
D) European Commission

Question 24

Political turmoil in several African nations has persistently impeded any meaningful progress in economic integration.

Question 25

The _____ was established to increase multinational cooperation in view of the economic rise of the Pacific nations and the growing interdependence within the region.

A) Mercosur
B) Asia-Pacific Economic Cooperation
C) Andean Community
D) Association of Southeast Asian Nations

Question 26

The movement toward regional economic integration been most successful in _____.

A) Europe
B) Asia
C) Africa
D) Central America

Question 27

To exploit the opportunities presented by the EU, non-EU firms must establish EU subsidiaries.

Question 28

There are two main trading blocs in Europe, the European Union and the _____.

A) Mercosur
B) Andean Community
C) European Free Trade Association
D) European Council

Question 29

On average, studies indicate that NAFTA's overall impact has been:

A) large but negative.
B) large and positive.
C) small and negative.
D) small but positive.

Question 30

Three long-term EU members, Great Britain, _____, and Sweden, have not adopted the euro.

A) France
B) Norway
C) Denmark
D) Greece

Question 31

The emerging role of the _____ in competition policy suggests the EU is increasingly willing and able to intervene and impose conditions on companies proposing mergers and acquisitions.

A) European Commission
B) Court of Justice
C) European Council
D) European Parliament

Question 32

A(n) _____ 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) economic union
B) common market
C) customs union
D) full political union

Question 33

Once barriers to trade and investment are removed, companies:

A) can realize cost economies by centralizing production in key locations regardless of culture differences.
B) can treat a group of integrated countries like the EU as a single market and produce standardized products for it.
C) no longer have to deal with competitive practices that formerly limited their ability to realize cost economies.
D) may still find it difficult to produce a standardized product for a single multiple-country market.

Question 34

The establishment of the euro required participating countries to:

A) first convert their currency to U.S. dollars, then to euros.
B) give up their monetary policy.
C) create national banks at which citizens can convert their existing currency.
D) maintain their own currency in parallel to the euro.

Question 35

_____ occurs when higher-cost external producers are replaced by lower-cost external producers within the free trade area.

A) Trade creation
B) A customs union
C) Trade diversion
D) A common market

Question 36

A(n) _____ entails even closer economic integration and cooperation than a common market.

A) customs union
B) free trade area
C) economic union
D) full political union

Question 37

A benefit to companies of economic integration is the opportunity to centralize their production and reduce costs.

Question 38

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.

Question 39

According to _____, the trade diversion effects of Mercosur outweigh its trade creation effects.

A) Alexander Yeats
B) the majority of economists
C) Jacques Delors
D) the World Trade Organization

Question 40

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.

Question 41

A _____ 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) common market
B) customs union
C) free trade area
D) bonded market

Question 42

Why doesn't Great Britain use the euro as its national currency?

A) Would have to convert its economic structure to the euro
B) Would have to relinquish control of its monetary policy to the EU
C) Would have to change its financial markets operations
D) Would have to obtain approval from the U.S. Federal Reserve

Question 43

A(n) _____ 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) economic union
B) common market
C) customs union
D) free trade area

Question 44

_____ 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

Question 45

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

Question 46

What is the most enduring free trade area in the world?

A) NAFTA
B) EFTA
C) ASEAN
D) Mercosur

Question 47

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.

Question 48

Country A and Country B entered into a free trade agreement recently. After this, Country A starts importing heavy machinery from CountryB. Country A used to previously import 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

Question 49

Which of the following occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area?

A) Efficiency gain
B) Trade diversion
C) Trade deficit
D) Trade creation

Question 50

Which of the following is a reason why 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.

Question 51

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

Question 52

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?

A) Bonded market
B) Customs union
C) Free trade area
D) Common market

Question 53

Which feature of a common market differentiates it from a customs union?

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

Question 54

To ensure that a free trade agreement does not result in trade diversion, which of the following has to come within the scope of WTO?

A) Nontariff barriers
B) Services
C) Energy markets
D) Tax rates

Question 55

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

Question 56

The European Community was established by the:

A) Treaty of Rome signed in 1957.
B) Maastricht Treaty signed in 1991.
C) Maastricht Treaty of 1994.
D) Single European Act of 1987.

Question 57

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) allow countries to specialize in the production of goods and services that they can produce most efficiently.
D) reduces the potential for violent conflict.

Question 58

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

Question 59

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 incentives for political cooperation.
D) While a nation as a whole may benefit significantly, certain groups may lose.

Question 60

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

Question 61

How does the NAFTA seem to increase the international competitiveness of U.S. and Canadian firms?

A) It gives them access to scarce natural resource 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 like Brazil and Argentina.

Question 62

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 to 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.

Question 63

Which of the following was the outcome of the Treaty of Lisbon signed in 2007?

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.

Question 64

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

Question 65

What has been the most significant impact of NAFTA?

A) Its economic effects
B) Its political effects
C) Its psychological effects
D) Its social effects

Question 66

Which of the following is a reason why 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.

Question 67

Bolivia, Peru, Ecuador, Columbia, and Venezuela are all members of _____.

A) Mercosur
B) NAFTA
C) APEC
D) the Andean Pact

Question 68

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

Question 69

Which of the following is seen to be a consequence of the expansion of the EU from 15 nations to 27 nations?

A) Delays in the 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

Question 70

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

Question 71

In a(n) ____, 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) optimal currency area
B) unified economic area
C) uniform currency zone
D) monetary zone

Question 72

According to Alexander Yeats:

A) the trade diversion effects of Mercosur outweigh its trade creation effects.
B) the fastest growing items in intra-Mercosur trade were capital-intensive goods produced efficiently in the member countries.
C) Mercosur countries will be able to compete globally once the group's external trade barriers come down.
D) the customs union is becoming more perfect over time.

Question 73

Which of the following observations pertaining to the EU's Court of Justice is correct?

A) It is comprised 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.

Question 74

In early 2006, six CARICOM members and the United States established the _____, which was modeled on the EU's single market.

A) Central American Common Market
B) Central America Free Trade Agreement
C) Caribbean Single Market and Economy
D) North American Free Trade Area

Question 75

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) It becomes difficult to compare prices across Europe
D) It undermines the development of a pan-European capital market

Question 76

Which treaty, signed in December 1991, 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

Question 77

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

Question 78

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

Question 79

What was the main objection raised by those in the United States and Canada who opposed the ratification of the NAFTA?

A) Job losses
B) Balance of payment problems
C) Threat of competition from Asian companies
D) Threat of a loss of national sovereignty

Question 80

Mercosur originated as a(n) _____ between Brazil and Argentina in 1988.

A) common market
B) free trade pact
C) customs union
D) economic union