Question 1

In 1989, Canada and the United States agreed to implement a (an) ____ over a ten-year period.

Accepted Answer

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

Question 2

Among the benefits that a regional trading arrangement can provide are all of these EXCEPT

Accepted Answer

A)  economies of large-scale production. 
B)  specialization fostering. 
C)  attracting foreign investment. 
D)  a shorter production time. 
A)  economies of large-scale production. 
B)  specialization fostering. 
C)  attracting foreign investment. 
D)  a shorter production time.

Question 3

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.Comparing the trade creation and trade diversion effects, the impact of the Greece/France customs union on the welfare of Greece is

Accepted Answer

A)  a $5 increase in economic welfare. 
B)  a $10 increase in economic welfare. 
C)  a $5 decrease in economic welfare. 
D)  no change in economic welfare. 
A)  a $5 increase in economic welfare. 
B)  a $10 increase in economic welfare. 
C)  a $5 decrease in economic welfare. 
D)  no change in economic welfare.

Question 4

All welfare consequences of a regional trading arrangement are dynamic.

Accepted Answer

A) True 
 B)False

Question 5

When Western European democracies removed trade barriers and began to form the European Community, one of their hopes was that their economic and financial ties would bind them together so that it would not be in their interest to go to war again.

Accepted Answer

A) True 
 B)False

Question 6

Trade creation tends to more than offset trade diversion for a home country forming a customs union with partner countries when: (1) the tariff rate in the home country is high prior to the formation of the customs union; (2) there are a large number of countries forming the customs union.

Accepted Answer

A) True 
 B)False

Question 7

Explain the theory of optimum currency areas.

Accepted Answer

Much of the analysis of the benefits and

Question 8

The North American Free Trade Agreement was most strongly opposed by U.S.

Accepted Answer

A)  electronics manufacturers. 
B)  labor unions. 
C)  commercial banks. 
D)  engineering companies. 
A)  electronics manufacturers. 
B)  labor unions. 
C)  commercial banks. 
D)  engineering companies.

Question 9

American critics of the North American Free Trade Agreement thought that it could

Accepted Answer

A)  cause American workers to migrate to Mexico to find jobs. 
B)  cause U.S. companies to move to Mexico to benefit from lower labor costs. 
C)  cause Mexican companies to move to the United States to benefit from higher labor productivity. 
D)  cause Mexican companies to move to the United States to benefit from higher labor costs. 
A)  cause American workers to migrate to Mexico to find jobs. 
B)  cause U.S. companies to move to Mexico to benefit from lower labor costs. 
C)  cause Mexican companies to move to the United States to benefit from higher labor productivity. 
D)  cause Mexican companies to move to the United States to benefit from higher labor costs.

Question 10

Suppose that steel from Japan faces a 20 percent tariff in France and a 25 percent tariff in Italy, while France and Italy maintain free trade between each other.France and Italy are therefore part of a (an)

Accepted Answer

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

Question 11

As of 1992, the European Union had achieved the monetary union stage of economic integration.

Accepted Answer

A) True 
 B)False

Question 12

To protect its farmers from imports of agricultural goods, the European Union has implemented tariff rates that vary directly with world prices.

Accepted Answer

A) True 
 B)False

Question 13

A customs union that results in a sizable amount of __________ would be beneficial to global welfare.

Accepted Answer

A)  trade creation 
B)  trade diversion 
C)  trade restrictions 
D)  trade diversification 
A)  trade creation 
B)  trade diversion 
C)  trade restrictions 
D)  trade diversification

Question 14

Smaller nations may seek safe haven trading arrangements with larger nations when future access to that market seems uncertain.This was reason for the formation of

Accepted Answer

A)  WTO. 
B)  GATT. 
C)  NAFTA. 
D)  Council for Mutual Economic Assistance. 
A)  WTO. 
B)  GATT. 
C)  NAFTA. 
D)  Council for Mutual Economic Assistance.

Question 15

Relative to a regional trade agreement, a multilateral trade agreement may be more beneficial to global welfare in that it entails

Accepted Answer

A)  less trade creation. 
B)  less trade diversion. 
C)  more trade diversion. 
D)  more trade consumption. 
A)  less trade creation. 
B)  less trade diversion. 
C)  more trade diversion. 
D)  more trade consumption.

Question 16

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.As a result of a customs union formed with France, Portugal's overall welfare rises by $900.

Accepted Answer

A) True 
 B)False

Question 17

An optimal currency area is a region in which it is economically preferable to have a single official currency rather than multiple official currencies.

Accepted Answer

A) True 
 B)False

Question 18

An advantage of the European Monetary Union (Eurozone) is that its member countries have common fiscal policies.

Accepted Answer

A) True 
 B)False

Question 19

With a preferential trading arrangement, a group of countries agrees to unilaterally reduce tariffs applied to imports from all countries of the world.

Accepted Answer

A) True 
 B)False

Question 20

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.If Portugal had formed a customs union with Germany, Portugal's welfare would have decreased by $500.

Accepted Answer

A) True 
 B)False

In 1989, Canada and the United States agreed to implement a (an) ____ over a ten-year period.

Among the benefits that a regional trading arrangement can provide are all of these EXCEPT

All welfare consequences of a regional trading arrangement are dynamic.

When Western European democracies removed trade barriers and began to form the European Community, one of their hopes was that their economic and financial ties would bind them together so that it would not be in their interest to go to war again.

Trade creation tends to more than offset trade diversion for a home country forming a customs union with partner countries when: (1) the tariff rate in the home country is high prior to the formation of the customs union; (2) there are a large number of countries forming the customs union.

Explain the theory of optimum currency areas.

The North American Free Trade Agreement was most strongly opposed by U.S.

American critics of the North American Free Trade Agreement thought that it could

Suppose that steel from Japan faces a 20 percent tariff in France and a 25 percent tariff in Italy, while France and Italy maintain free trade between each other.France and Italy are therefore part of a (an)

As of 1992, the European Union had achieved the monetary union stage of economic integration.

To protect its farmers from imports of agricultural goods, the European Union has implemented tariff rates that vary directly with world prices.

A customs union that results in a sizable amount of __________ would be beneficial to global welfare.

Smaller nations may seek safe haven trading arrangements with larger nations when future access to that market seems uncertain.This was reason for the formation of

Relative to a regional trade agreement, a multilateral trade agreement may be more beneficial to global welfare in that it entails

An optimal currency area is a region in which it is economically preferable to have a single official currency rather than multiple official currencies.

An advantage of the European Monetary Union (Eurozone) is that its member countries have common fiscal policies.

With a preferential trading arrangement, a group of countries agrees to unilaterally reduce tariffs applied to imports from all countries of the world.

The International Economy and Globalization

Foundations of Modern Trade Theory Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

International Factor Movements and Multinational Enterprises

The Balance of Payments

Foreign Exchange

Exchange Rate Determination

Mechanisms of International Adjustment

Exchange Rate Adjustments and the Balance of Payments

Exchange Rate Systems and Currency Crises

Filters

Exam 8: Regional Trading Arrangements

In 1989, Canada and the United States agreed to implement a (an) ____ over a ten-year period.

Among the benefits that a regional trading arrangement can provide are all of these EXCEPT

All welfare consequences of a regional trading arrangement are dynamic.

When Western European democracies removed trade barriers and began to form the European Community, one of their hopes was that their economic and financial ties would bind them together so that it would not be in their interest to go to war again.

Trade creation tends to more than offset trade diversion for a home country forming a customs union with partner countries when: (1) the tariff rate in the home country is high prior to the formation of the customs union; (2) there are a large number of countries forming the customs union.

Explain the theory of optimum currency areas.

The North American Free Trade Agreement was most strongly opposed by U.S.

American critics of the North American Free Trade Agreement thought that it could

Suppose that steel from Japan faces a 20 percent tariff in France and a 25 percent tariff in Italy, while France and Italy maintain free trade between each other.France and Italy are therefore part of a (an)

As of 1992, the European Union had achieved the monetary union stage of economic integration.

To protect its farmers from imports of agricultural goods, the European Union has implemented tariff rates that vary directly with world prices.

A customs union that results in a sizable amount of __________ would be beneficial to global welfare.

Smaller nations may seek safe haven trading arrangements with larger nations when future access to that market seems uncertain.This was reason for the formation of

Relative to a regional trade agreement, a multilateral trade agreement may be more beneficial to global welfare in that it entails

An optimal currency area is a region in which it is economically preferable to have a single official currency rather than multiple official currencies.

An advantage of the European Monetary Union (Eurozone) is that its member countries have common fiscal policies.

With a preferential trading arrangement, a group of countries agrees to unilaterally reduce tariffs applied to imports from all countries of the world.

The International Economy and Globalization

Foundations of Modern Trade Theory Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

International Factor Movements and Multinational Enterprises

The Balance of Payments

Foreign Exchange

Exchange Rate Determination

Mechanisms of International Adjustment

Exchange Rate Adjustments and the Balance of Payments

Exchange Rate Systems and Currency Crises

Filters