Question 1

The Andean Community now operates as a customs union.

Accepted Answer

In 1990, the heads of the five current members of the Andean Community-Bolivia, Ecuador, Peru, Colombia, and Venezuela-met in the Galápagos Islands. The resulting Galápagos Declaration effectively relaunched the Andean Pact, which was renamed the Andean Community in 1997. The declaration's objectives included the establishment of a free trade area by 1992, a customs union by 1994, and a common market by 1995. This last milestone has not been reached. A customs union was implemented in 1995-although Peru opted out and Bolivia received preferential treatment until 2003. The Andean Community now operates as a customs union.

Question 2

Which of the following is true with regard to regional economic integration?

Accepted Answer

By creating a single market, countries aim to lower the price for goods and services across the bloc. Such a policy is good for consumers, because it lowers prices, but it presents challenges to some producers who have to adapt to a more competitive environment.

Question 3

Which of the following is a feature of a common market?

Accepted Answer

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.

Question 4

The Andean Pact was largely based on the European Union model and was highly successful at achieving its stated goals.

Accepted Answer

Bolivia, Chile, Ecuador, Colombia, and Peru signed an agreement in 1969 to create the Andean Pact. The pact was largely based on the European Union model, but was far less successful at achieving its stated goals.

Question 5

Which of the following are the most popular form of regional economic integration, accounting for almost 90 percent of regional agreements?

Accepted Answer

In a free trade area, all barriers to the trade of goods and services among member countries are removed. Free trade agreements are the most popular form of regional economic integration, accounting for almost 90 percent of regional agreements.

Question 6

Which of the following refers to 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?

Accepted Answer

Regional economic integration refers to 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 7

The stated aim of the Asia-Pacific Economic Cooperation is to increase multilateral cooperation in view of the economic rise of the Pacific nations and the growing interdependence within the region.

Accepted Answer

The Asia-Pacific Economic Cooperation (APEC) was founded in 1990 at the suggestion of Australia. The stated aim of the APEC is to increase multilateral cooperation in view of the economic rise of the Pacific nations and the growing interdependence within the region. U.S. support for APEC was also based on the belief that it might prove a viable strategy for heading off any moves to create Asian groupings from which it would be excluded.

Question 8

Which of the following is true of the European Free Trade Association (EFTA)?

Accepted Answer

The European Free Trade Association (EFTA) was founded by those western European countries that initially decided not to be part of the European Community (the forerunner of the EU). Its original members included Austria, Great Britain, Denmark, Finland, and Sweden, all of which are now members of the EU.

Question 9

The creation of a single market through regional economic integration offers significant opportunities because markets that were formerly protected from foreign competition are increasingly open.

Accepted Answer

The creation of a single market through regional economic integration offers significant opportunities because markets that were formerly protected from foreign competition are increasingly open. For example, in Europe before 1992, the large French and Italian markets were among the most protected. These markets are now much more open to foreign competition in the form of both exports and direct investment.

Question 10

Which of the following has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members?

Accepted Answer

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. Labor and capital are free to move because there are no restrictions on immigration, emigration, or cross-border flows of capital among member countries.

Question 11

Which of the following is true with regard to a free trade area?

Accepted Answer

In a free trade area, each country is allowed to determine its own trade policies with regard to nonmembers. Thus, for example, the tariffs placed on the products of nonmember countries may vary from member to member.

Question 12

Since its establishment in January 1, 1999, the euro has steadily appreciated against the U.S. dollar, reaffirming the ability of the European Central Bank to manage monetary policy within the euro zone.

Accepted Answer

Since its establishment in January 1, 1999, the euro has a volatile trading history against the world's major currency, the U.S. dollar. After starting life in 1999 at €1 = $1.17, the euro steadily fell until it reached a low of €1 = $0.83 in October 2000, leading critics to claim the euro was a failure. A major reason for the fall in the euro's value was that international investors were investing money in booming U.S. stocks and bonds and taking money out of Europe to finance this investment.

Question 13

Which of the following is defined as a group of countries committed to removing all barriers to the free flow of goods and services between each other, but pursuing independent external trade policies?

Accepted Answer

A free trade area refers to a group of countries committed to removing all barriers to the free flow of goods and services between each other, but pursuing independent external trade policies. In the theoretically ideal free trade area, no discriminatory tariffs, quotas, subsidies, or administrative impediments are allowed to distort trade between members.

Question 14

Three countries enter into an agreement to remove all tariffs and trade barriers between them. They decide on a common trade policy with regard to nonmembers. Faced with political backlash, the countries stop short of allowing mobility of factors of production such as labor and capital. Which of the following levels of economic integration best describes this arrangement?

Accepted Answer

A customs union is a group of countries committed to (1) removing all barriers to the free flow of goods and services between each other and (2) the pursuit of a common external trade policy.

Question 15

Where has the movement toward regional economic integration been most successful?

Accepted Answer

Nowhere has the movement toward regional economic integration been more successful than in Europe. Today, the EU has a population of almost 500 million and a gross domestic product of more than $17 trillion, making it slightly larger than the United States in economic terms.

Question 16

An advantage of the emergence of single markets is that the lowering of barriers to trade and investment among countries has led to decreased price competition throughout the European Union.

Accepted Answer

Just as the emergence of single markets creates opportunities for business, it also presents a number of threats. The lowering of barriers to trade and investment among countries has led to increased price competition throughout the European Union and the North American Free Trade Agreement.

Question 17

A major stumbling block in the creation of the Free Trade Area of the Americas is that the United States wants its southern neighbors to agree to higher manufacturing tariffs, which they are not eager to embrace.

Accepted Answer

A major stumbling block in the creation of the Free Trade Area of the Americas is that the United States wants its southern neighbors to agree to tougher enforcement of intellectual property rights and lower manufacturing tariffs, which they do not seem to be eager to embrace.

Question 18

The basic objective of the Association of Southeast Asian Nations is to foster freer trade among member countries and to achieve cooperation in their industrial policies.

Accepted Answer

The basic objective of the Association of Southeast Asian Nations is to foster freer trade among member countries and to achieve cooperation in their industrial policies. Progress has been limited, however.

Question 19

Since the number of trade groups in the African continent is impressive, progress toward the establishment of meaningful trade blocs has been fast.

Accepted Answer

There are now nine trade blocs on the African continent. Many countries are members of more than one group. Although the number of trade groups is impressive, progress toward the establishment of meaningful trade blocs has been slow.

Question 20

Which of the following is the economic level corresponding to the least integration?

Accepted Answer

Several levels of economic integration are possible in theory. From least integrated to most integrated, the levels of economic integration are a free trade area, a customs union, a common market, an economic union, and, finally, a full political union.

Quiz 9: Regional Economic Integration