Question 1

The benefit that Mexico is likely to receive from NAFTA:

Accepted Answer

A)  greater export-led growth 
B)  encouraging the return of flight capital 
C)  more rapid structural change 
D)  all of the above 
A)  greater export-led growth 
B)  encouraging the return of flight capital 
C)  more rapid structural change 
D)  all of the above D

Question 2

A customs union that allows for the free movement of labor and capital among its member nations is called a:

Accepted Answer

A)  preferential trade arrangement 
B)  free-trade area 
C)  common market 
D)  all of the above 
A)  preferential trade arrangement 
B)  free-trade area 
C)  common market 
D)  all of the above C

Question 3

A trade-diverting customs union is more likely to lead to trade creation:

Accepted Answer

A)  the lower are the pre-union trade barriers of the member countries 
B)  the lower are the customs union's barriers on trade with the rest of the world 
C)  the smaller is the number of countries forming the customs union and the smaller their size 
D)  the more complementary rather than competitive are the economies of the nations forming the customs union 
A)  the lower are the pre-union trade barriers of the member countries 
B)  the lower are the customs union's barriers on trade with the rest of the world 
C)  the smaller is the number of countries forming the customs union and the smaller their size 
D)  the more complementary rather than competitive are the economies of the nations forming the customs union B

Question 4

The European Union currently has

Accepted Answer

A)  6 members 
B)  12 members 
C)  15 members 
D)  27 members 
A)  6 members 
B)  12 members 
C)  15 members 
D)  27 members

Question 5

The benefit that the United States is likely to receive from NAFTA:

Accepted Answer

A)  increasing competition in product and resource markets 
B)  greater technical innovation 
C)  improvements in its terms of trade 
D)  all of the above 
A)  increasing competition in product and resource markets 
B)  greater technical innovation 
C)  improvements in its terms of trade 
D)  all of the above

Question 6

A trade-diverting customs union:

Accepted Answer

A)  increases trade among union members and with nonmember nations 
B)  reduces trade among union members and with nonmember nations 
C)  increases trade among members but reduces trade with non-members 
D)  reduces trade among union members but increases it with nonmembers 
A)  increases trade among union members and with nonmember nations 
B)  reduces trade among union members and with nonmember nations 
C)  increases trade among members but reduces trade with non-members 
D)  reduces trade among union members but increases it with nonmembers

Question 7

The theory of customs union is a special case of the theory of:

Accepted Answer

A)  effective protection 
B)  the second best 
C)  the product cycle 
D)  comparative advantage 
A)  effective protection 
B)  the second best 
C)  the product cycle 
D)  comparative advantage

Question 8

What is trade diversion?

Accepted Answer

Trade diversion occurs when lower cost o

Question 9

Why do economies that are competitive rather than complementary tend to increase the benefits from customs unions?

Accepted Answer

Countries that are competitive (produce

Question 10

A trade-creating customs union is one where:

Accepted Answer

A)  lower-cost imports from outside the customs union are replaced by higher-cost imports from a union member 
B)  some domestic production in a member nation is replaced by lower-cost imports from another member nation 
C)  trade among members increases but trade with nonmembers decreases 
D)  trade among members decreases while trade with nonmembers increases 
A)  lower-cost imports from outside the customs union are replaced by higher-cost imports from a union member 
B)  some domestic production in a member nation is replaced by lower-cost imports from another member nation 
C)  trade among members increases but trade with nonmembers decreases 
D)  trade among members decreases while trade with nonmembers increases

Question 11

The formation of the EU resulted in:

Accepted Answer

A)  trade creation in industrial and agricultural products 
B)  trade diversion in industrial and agricultural products 
C)  trade creation in industrial products and trade diversion in agricultural products 
D)  trade diversion in industrial products and trade creation in agricultural products 
A)  trade creation in industrial and agricultural products 
B)  trade diversion in industrial and agricultural products 
C)  trade creation in industrial products and trade diversion in agricultural products 
D)  trade diversion in industrial products and trade creation in agricultural products

Question 12

Which of the following best describes economic integration in Central and Eastern Europe?

Accepted Answer

A)  The Council of Mutual Economic Assistance is the primary current organization. 
B)  The Baltic states are actively organized into their own trading bloc. 
C)  The more developed countries of Central Europe are attempting to become EU members. 
D)  All of Eastern and Central Europe will become part of the EU. 
A)  The Council of Mutual Economic Assistance is the primary current organization. 
B)  The Baltic states are actively organized into their own trading bloc. 
C)  The more developed countries of Central Europe are attempting to become EU members. 
D)  All of Eastern and Central Europe will become part of the EU.

Question 13

Which of the following is not a trading bloc or agreement including some South American countries?

Accepted Answer

A)  MERCOSUR 
B)  ASEAN 
C)  FTAA 
D)  CACM 
A)  MERCOSUR 
B)  ASEAN 
C)  FTAA 
D)  CACM

Question 14

A trade-diverting customs union results in:

Accepted Answer

A)  trade diversion only 
B)  trade creation only 
C)  both trade creation and trade diversion 
D)  we cannot say 
A)  trade diversion only 
B)  trade creation only 
C)  both trade creation and trade diversion 
D)  we cannot say

Question 15

Discuss the potential dynamic welfare gains that can result from the formation of a customs union.

Accepted Answer

Increased competitio

Question 16

Which of the following describes a case in which there are likely to be net benefits from a customs union?

Accepted Answer

A)  The union includes the least-cost producers of the traded goods. 
B)  There are low barriers to trade prior to the union. 
C)  The countries are complementary rather than competitive. 
D)  The countries are a larger geographic distance from each other. 
A)  The union includes the least-cost producers of the traded goods. 
B)  There are low barriers to trade prior to the union. 
C)  The countries are complementary rather than competitive. 
D)  The countries are a larger geographic distance from each other.

Question 17

Which is a stumbling block to successful economic integration among groups of developing nations?

Accepted Answer

A)  benefits are not evenly distributed among nations 
B)  many developing nations are not willing to relinquish part of their newly-acquired sovereignty to a supranational community body, as required for successful economic integration 
C)  the complementary nature of their economies and competition for the same world markets for their agricultural exports 
D)  all of the above 
A)  benefits are not evenly distributed among nations 
B)  many developing nations are not willing to relinquish part of their newly-acquired sovereignty to a supranational community body, as required for successful economic integration 
C)  the complementary nature of their economies and competition for the same world markets for their agricultural exports 
D)  all of the above

Question 18

Discuss the attempts at economic integration in developing countries.Why have these attempts been less successful than in developed countries?

Accepted Answer

There are many examples of economic inte

Question 19

The formation of a trade-creating customs union where all economic resources of member nations are fully employed before and after the formation of the customs union leads to an:

Accepted Answer

A)  increase in the welfare of member and nonmember nations 
B)  increase in the welfare of member nations only 
C)  increase in the welfare of nonmember nations only 
D)  increase or decrease in the welfare of member and nonmember nations 
A)  increase in the welfare of member and nonmember nations 
B)  increase in the welfare of member nations only 
C)  increase in the welfare of nonmember nations only 
D)  increase or decrease in the welfare of member and nonmember nations

Question 20

One potential outcome from the formation of a regional trade agreement is

Accepted Answer

A)  trade creation 
B)  trade diversion 
C)  economies of scale 
D)  all of the above 
A)  trade creation 
B)  trade diversion 
C)  economies of scale 
D)  all of the above

Exam 10: Economic Integration: Customs Unions and Free Trade Areas

The benefit that Mexico is likely to receive from NAFTA:

A customs union that allows for the free movement of labor and capital among its member nations is called a:

A trade-diverting customs union is more likely to lead to trade creation:

The European Union currently has

The benefit that the United States is likely to receive from NAFTA:

A trade-diverting customs union:

The theory of customs union is a special case of the theory of:

What is trade diversion?

Why do economies that are competitive rather than complementary tend to increase the benefits from customs unions?

A trade-creating customs union is one where:

The formation of the EU resulted in:

Which of the following best describes economic integration in Central and Eastern Europe?

Which of the following is not a trading bloc or agreement including some South American countries?

A trade-diverting customs union results in:

Discuss the potential dynamic welfare gains that can result from the formation of a customs union.

Which of the following describes a case in which there are likely to be net benefits from a customs union?

Which is a stumbling block to successful economic integration among groups of developing nations?

Discuss the attempts at economic integration in developing countries.Why have these attempts been less successful than in developed countries?

The formation of a trade-creating customs union where all economic resources of member nations are fully employed before and after the formation of the customs union leads to an:

One potential outcome from the formation of a regional trade agreement is

Introduction

The Law of Comparative Advantage

The Standard Theory of International Trade

Demand and Supply, offer Curves, and the Terms of Trade

Factor Endowments and the Heckscherohlin Theory

Economies of Scale, imperfect Competition, and International Trade

Economic Growth and International Trade

Trade Restrictions: Tariffs

Nontariff Trade Barriers and the New Protectionism

International Trade and Economic Development

International Resource Movements and Multinational Corporations

Balance of Payments

Foreign Exchange Markets and Exchange Rates

Exchange Rate Determination

The Price Adjustment Mechanism With Flexible and Fixed Exchange Rates

The Income Adjustment Mechanism and Synthesis of Automatic Adjustments

Open Economy Macroeconomics: Adjustment Policies

Prices and Output in an Open Economy: Aggregate Demand and Aggregate Supply

Flexible Versus Fixed Exchange Rates, the European Monetary System, and Macroeconomic Policy Coordination

The International Monetary System: Past, present, and Future Answers to Selected Problems on Web

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