Chapter 09Regional Economic Integration True / False Questions 1. As with free trade in general, regional economic integration creates gain for consumers, but it can be challenging for some producers. True False 2. In a free trade area, all barriers to the trade of goods and services among member countries are removed and a common external trade policy is adopted. True False 3. The emphasis of the European Free Trade Association has been on free trade in consumer goods. True False 4. A common market has no barriers to trade among member-countries, includes a common external trade policy, and allows factors of production to move freely amongmembers. True False 5. In a customs union, a common currency is adopted. True False 6. A political union addresses the issue of how to make a coordinating bureaucracy accountable to the citizens of member nations of an economic union. True False 7. Economic theories suggest that free trade and investment is a positive-sum game, in which all participating countries stand to gain. True False 9-1© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distributionin any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.8. In terms of regional economic integration, linking neighboring economies and makingthem increasingly dependent on each other creates incentives for political cooperation between the neighboring states. True False 9. To achieve full economic union, the European Union (EU) introduced a common currency, the euro, controlled by a central EU bank. True False 10. Some economists have pointed out that the benefits of regional integration are determined by the extent of trade diversion, as opposed to trade creation. True False 11. Trade creation occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area. True False 12. In theory, the World Trade Organization rules should ensure that a free trade agreement results in trade diversion. True False 13. Of the two trade blocs in Europe, the European Union is by far the most significant, interms of membership as well as economic and political influence in the world economy. True False 14. With the signing of the Treaty of Rome in 1957, the European Free Trade Association was established. True False 15. The European commission is the ultimate controlling authority within the European Union because draft legislation from the commission can become EU law only if the council agrees. True False 16. The European Council is composed of one representative from the government of each member-state but the membership varies depending on the topic being discussed. True False 9-2© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distributionin any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.17. The European Parliament is responsible for proposing European Union (EU) legislation, implementing it, and monitoring compliance with EU laws by member-states. True False 18. The Court of Justice, which is comprised of one judge from each country, is the supreme appeals court for European Union law. True False 19. The European Parliament, which meets in Strasbourg, France, is primarily a legislativerather than consultative body. True False 20. The Single European Act proposed to abolish restrictions on cabotage by the end of 1992. True False 21. By adopting the euro, the European Union has created the second most widely tradedcurrency in the world after that of the U.S. dollar. True False 22. A disadvantage of the euro is that the development of a pan-European, euro-denominated capital market will decrease the range of investment options open to both individuals and institutions. True False 23. In an optimal currency area, 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. True False 24. 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. True False 25. The North American Free Trade Agreement (NAFTA) refers to the free trade area between Canada, Mexico, and the United States. True False 9-3© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distributionin any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.26. The most significant impact of the North American Free Trade Agreement has not been to create the background for increased political stability in Mexico. True False 27. The Andean Pact was largely based on the European Union model and was highly successful at achieving its stated goals. True False 28. The Andean Community now operates as a customs union. True False 29. Mercosur originated in 1988 as a free trade pact between Chile and Argentina. True False 30. 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. True False 31. 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. True False 32. 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. True False 33. Since the number of trade groups in the African continent is impressive, progress toward the establishment of meaningful trade blocs has been fast. True False 34. 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. True False 9-4© 2014 by McGraw-Hill Education. This is proprietary