Question 1

According to the theory of optimal currency areas, there are gains to be achieved from sharing a currency across national boundaries.These gains include

Accepted Answer

A)   higher transactions costs.
B)   greater uncertainty for investors.
C)   monetary policies run by central banks of member nations.
D)   enhanced competition.E) B) and C)
F) All of the above

Question 2

An objective of all of the members of the European Union has been to

Accepted Answer

A)   abolish tariff and nontariff barriers to trade among member countries.
B)   adopt identical fiscal policies for all countries belonging to the EU.
C)   form a customs union agreement with members of NAFTA.
D)   establish a common currency and a common monetary policy.E) A) and B)
F) A) and D)

Question 3

Members of the European Union find that "trade creation" is fostered when their economies are

Accepted Answer

A)   highly competitive.
B)   highly noncompetitive.
C)   small in economic importance.
D)   geographically distant.E) A) and B)
F) A) and C)

Question 4

Suppose that Mexico and Canada form a free trade area.Mexicans then decrease auto manufacturing and increase imports of autos from Canada, while the Canadians decrease computer production and import more computers from Mexico.This is an example of

Accepted Answer

A)   trade diversion.
B)   trade creation.
C)   trade destruction.
D)   trade exhaustion.E) All of the above
F) C) and D)

Question 5

As new regional trading arrangements are formed, the opportunity cost of remaining outside

Accepted Answer

A)   increases.
B)   decreases.
C)   either increases or decreases.
D)   neither increases nor decreases.E) B) and D)
F) A) and B)

Question 6

The figure below depicts the steel market for Portugal, a small nation that is unable to affect the world price. Assume that Germany and France can supply steel to Portugal at a price of $200 and $300, respectively.

Figure 8.2. Portugal's Steel Market

-Consider Figure 8.2.With free trade, Portugal will import 25 tons of steel from Germany at a price of $200 per ton.

Accepted Answer

A) True 
 B)False

Question 7

What is meant by economic integration?

Accepted Answer

The term refers to the process...

Question 8

By the mid-1990s, the European Union had essentially achieved the common market stage of economic integration.

Accepted Answer

A) True 
 B)False

Question 9

If a customs union included all of the countries in the world, there could exist only trade creation, not trade diversion.

Accepted Answer

A) True 
 B)False

Question 10

Regarding the benefits of regional trade agreements, which of the following is NOT a benefit?

Accepted Answer

A)   Regional trade agreements may help manage immigration flows.
B)   Regional trade agreements promote regional security.
C)   Regional trade agreements may help lock in policy shifts towards market-oriented reform.
D)   Regional trade agreements may promote democracy.E) C) and D)
F) A) and B)

Question 11

Figure 8.1 depicts the supply and demand schedules of calculators for Greece, a "small" country that is unable to affect the world price. Greece's supply and demand schedules of calculators are respectively depicted by SG and DG. Assume that Greece imports calculators from either Germany or France. Suppose Germany is the world's low-cost producer who can supply calculators to Greece at $20 per unit, while France can supply calculators at $30 per unit.

Figure 8.1. Effects of a Customs Union

-Consider Figure 8.1.Assume Greece levies a per-unit tariff of $20 on imports from both Germany and France. The deadweight welfare loss to Greece resulting from the $20 tariff equals

Accepted Answer

A)   $20.
B)   $40.
C)   $60.
D)   $80.E) C) and D)
F) None of the above

Question 12

Under the European Union's common agricultural policy, a variable import levy equals the

Accepted Answer

A)   amount by which the EU's support price exceeds the world price.
B)   amount by which the world price exceeds the EU's support price.
C)   support price of the EU.
D)   world price.E) B) and C)
F) A) and C)

Question 13

Critics of the North American Free Trade Agreement feared that many Americans would migrate to Mexico to find jobs.

Accepted Answer

A) True 
 B)False

Question 14

It is generally agreed that completing the common market stage of integration for the European Union contributed to overall welfare losses that were due to trade diversion exceeding trade creation.

Accepted Answer

A) True 
 B)False

Question 15

When the North American Free Trade Agreement was being considered, American critics argued that it would likely result in

Accepted Answer

A)   a reduction in U.S. competitiveness against Canada.
B)   a loss of American jobs to Mexico.
C)   a gain in U.S. competitiveness against Mexico.
D)   additional jobs for unskilled workers in the United States.E) B) and D)
F) None of the above

Question 16

The task of creating an economic union is

Accepted Answer

A)   difficult.
B)   relatively easy.
C)   similar to creating a customs union.
D)   the simplest of all economic integrations.E) B) and D)
F) B) and C)

Question 17

If Chile and Mexico form a free trade agreement, the welfare of the two countries will necessarily increase.

Accepted Answer

A) True 
 B)False

Question 18

Assume that the formation of a customs union turns out to include the lowest-cost world producer of the product in question.Which effect could NOT occur for the participating countries?

Accepted Answer

A)   trade creation-production effect
B)   trade creation-consumption effect
C)   trade diversion
D)   scale economies and competitionE) A) and D)
F) C) and D)

Question 19

The figure below depicts the steel market for Portugal, a small nation that is unable to affect the world price. Assume that Germany and France can supply steel to Portugal at a price of $200 and $300, respectively.

Figure 8.2. Portugal's Steel Market

-Consider Figure 8.2.With free trade, Portugal will

Accepted Answer

A)   import 0 tons of steel for Germany and 15 tons of steel from France at $300 per ton.
B)   import 25 tons of steel from Germany at $200 per ton and 15 tons of steel from France at $300 per ton.
C)   import 15 tons of steel from Germany at $200 per ton and 10 tons of steel from France at $200 per ton.
D)   import 25 tons of steel from Germany at $200 per ton and 0 tons from France.E) A) and B)
F) A) and D)

Question 20

Regarding the interests of a nonmember nation of a regional trading agreement

Accepted Answer

A)   the exporting interests of the nonmember nation outweigh its import competing interests.
B)   the import competing interests of the nonmember nation outweigh its exporting interests.
C)   the nonmember nation will have a better negotiating position.
D)   the nonmember nation has no interest in the regional trading arrangement.E) All of the above
F) C) and D)

Exam 8: Regional Trading Arrangements

Suppose that Mexico and Canada form a free trade area.Mexicans then decrease auto manufacturing and increase imports of autos from Canada, while the Canadians decrease computer production and import more computers from Mexico.This is an example of

Correct Answer
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Correct Answer
verified

An objective of all of the members of the European Union has been to

Correct Answer
verified

Correct Answer
verified

According to the theory of optimal currency areas, there are gains to be achieved from sharing a currency across national boundaries.These gains include

Correct Answer
verified

If Chile and Mexico form a free trade agreement, the welfare of the two countries will necessarily increase.

Correct Answer
verified

It is generally agreed that completing the common market stage of integration for the European Union contributed to overall welfare losses that were due to trade diversion exceeding trade creation.

Correct Answer
verified

As new regional trading arrangements are formed, the opportunity cost of remaining outside

Correct Answer
verified

Regarding the benefits of regional trade agreements, which of the following is NOT a benefit?

Correct Answer
verified

The task of creating an economic union is

Correct Answer
verified

Correct Answer
verified

If a customs union included all of the countries in the world, there could exist only trade creation, not trade diversion.

Correct Answer
verified

Assume that the formation of a customs union turns out to include the lowest-cost world producer of the product in question.Which effect could NOT occur for the participating countries?

Correct Answer
verified

Under the European Union's common agricultural policy, a variable import levy equals the

Correct Answer
verified

Members of the European Union find that "trade creation" is fostered when their economies are

Correct Answer
verified

When the North American Free Trade Agreement was being considered, American critics argued that it would likely result in

Correct Answer
verified

What is meant by economic integration?

Correct Answer
verified
The term refers to the process...
View Answer

By the mid-1990s, the European Union had essentially achieved the common market stage of economic integration.

Correct Answer
verified

Regarding the interests of a nonmember nation of a regional trading agreement

Correct Answer
verified

Critics of the North American Free Trade Agreement feared that many Americans would migrate to Mexico to find jobs.

Correct Answer
verified

Exam 8: Regional Trading Arrangements

Suppose that Mexico and Canada form a free trade area.Mexicans then decrease auto manufacturing and increase imports of autos from Canada, while the Canadians decrease computer production and import more computers from Mexico.This is an example of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An objective of all of the members of the European Union has been to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to the theory of optimal currency areas, there are gains to be achieved from sharing a currency across national boundaries.These gains include

Correct AnswerverifiedShow Answer

If Chile and Mexico form a free trade agreement, the welfare of the two countries will necessarily increase.

Correct AnswerverifiedShow Answer

It is generally agreed that completing the common market stage of integration for the European Union contributed to overall welfare losses that were due to trade diversion exceeding trade creation.

Correct AnswerverifiedShow Answer

As new regional trading arrangements are formed, the opportunity cost of remaining outside

Correct AnswerverifiedShow Answer

Regarding the benefits of regional trade agreements, which of the following is NOT a benefit?

Correct AnswerverifiedShow Answer

The task of creating an economic union is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a customs union included all of the countries in the world, there could exist only trade creation, not trade diversion.

Correct AnswerverifiedShow Answer

Assume that the formation of a customs union turns out to include the lowest-cost world producer of the product in question.Which effect could NOT occur for the participating countries?

Correct AnswerverifiedShow Answer

Under the European Union's common agricultural policy, a variable import levy equals the

Correct AnswerverifiedShow Answer

Members of the European Union find that "trade creation" is fostered when their economies are

Correct AnswerverifiedShow Answer

When the North American Free Trade Agreement was being considered, American critics argued that it would likely result in

Correct AnswerverifiedShow Answer

What is meant by economic integration?

Correct AnswerverifiedThe term refers to the process...View AnswerShow Answer

By the mid-1990s, the European Union had essentially achieved the common market stage of economic integration.

Correct AnswerverifiedShow Answer

Regarding the interests of a nonmember nation of a regional trading agreement

Correct AnswerverifiedShow Answer

Critics of the North American Free Trade Agreement feared that many Americans would migrate to Mexico to find jobs.

Correct AnswerverifiedShow Answer

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verified
The term refers to the process...
View Answer

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