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Explain the concepts of trade creation and trade diversion.Who are the winners and losers in each scenario?

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Trade Creation-Economic integration remo...

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Which of the following statements is true of NAFTA?


A) It introduced a common currency for trade between the U.S.,Mexico and Canada.
B) It overrode the local content requirements and rules of origin for products manufactured in the member nations.
C) It eliminated all tariffs and nontariff trade barriers on goods originating from within North America.
D) It called for stringent rules regarding government procurement practices and the imposition of countervailing duties.

E) B) and C)
F) None of the above

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The main purpose of the ________ is to debate and amend legislation proposed by the European Commission of the EU.


A) European Parliament
B) Council of the European Union
C) Court of Auditors
D) Court of Justice

E) A) and B)
F) A) and C)

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The North American Free Trade Agreement membership includes Canada,Mexico,and the United States.

A) True
B) False

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The increase in the level of trade between nations that results from regional economic integration is called trade creation.

A) True
B) False

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Trade agreements allow competitors from other nations to enter the domestic market.

A) True
B) False

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Economic integration whereby countries remove all barriers to trade among themselves,but set a common trade policy against nonmembers is called a(n) ________.


A) preferential trade area
B) customs union
C) economic nationalism
D) free trade area

E) C) and D)
F) A) and B)

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For countries to become members of the European Union,they have to meet certain demands laid down by the EU referred to as the ________.


A) Copenhagen Criteria
B) Closer Economic Relations Agreement
C) Andean Community
D) Euro-Plus Pact

E) B) and C)
F) A) and D)

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Which of the following countries of the Central American Common Market has adopted the U.S.dollar as its official currency?


A) El Salvador
B) Honduras
C) Nicaragua
D) Costa Rica

E) A) and B)
F) B) and C)

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The Court of Justice is the court of appeals of the European Union.

A) True
B) False

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Scenario: Zucoland Zucoland,a small-sized country just south of the Andes mountain range,was invited to join a regional trading bloc.The government of Zucoland is considering the benefits and costs of joining such a bloc.The government is attracted by the fact that this trading bloc requires Zucoland to give up only the least amount of sovereignty compared to other types of blocs. -Which of the following would the government of Zucoland most likely experience as a benefit of joining the trading bloc?


A) increased national sovereignty
B) increased military security
C) trade diversion
D) higher-wage employment

E) A) and C)
F) B) and C)

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Regional economic integration is also referred to as ________.


A) mercantilism
B) nationalism
C) protectionism
D) regionalism

E) B) and C)
F) A) and B)

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A(n) ________ requires member nations to harmonize their tax,monetary,and fiscal policies and create a common currency.


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

E) A) and B)
F) A) and C)

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The primary purpose of the Gulf Cooperation Council (GCC)at its formation was to create a political union between Iraq and Iran.

A) True
B) False

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The main objectives of the Andean Community include ________.


A) introduction of tariffs for trade among member countries
B) separate policies in both transportation and certain industries
C) a common external tariff
D) a common currency

E) All of the above
F) B) and C)

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Scenario: Learning the Americas' Way The newly-formed countries that emerged after the break up of the United Frontier States (UFS) are interested in learning more about integration in the Americas.Because the former UFS nations have many similarities with the countries of North and South America,they believe they can learn from the integration experience in the Americas.To that end,they pose the following questions. -The NAFTA is best considered a(n) ________.


A) free trade area
B) customs union
C) economic union
D) political union

E) A) and B)
F) C) and D)

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The Council of the European Union is the executive body of the EU.

A) True
B) False

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The common currency of the European Union is known as the ________.


A) European currency unit
B) eurodollar
C) euro
D) European unit of account

E) All of the above
F) A) and C)

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Scenario: Moonland Union Twenty-six nations of Moonland region,have decided to cooperate with one another to eliminate trade barriers among them and create the Moonland Union.They are not sure,however,to what extent they want to cooperate. -If these twenty-six nations continue to eliminate all barriers to trade among themselves and set a common trade policy against nonmembers,they would create a ________.


A) free trade area
B) preferential trading area
C) customs union
D) political union

E) A) and B)
F) A) and C)

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Economic integration whereby countries remove all barriers to trade and the movement of labor and capital between themselves and set a common trade policy against nonmembers is called a ________.


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

E) C) and D)
F) A) and C)

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