Economic Integration

Question 1

Economic integration

Answer 1

The extent to which nations have abolished trade restrictions

Question 2

Preferential trade agreement

Answer 2

When two or more countries remove or reduce trade barriers on specific goods and services produced in the participants countries.

Question 3

Free trade area

Answer 3

When a group of countries remove trade barriers between themselves on all goods and services but have the ability to retain their own protectionism policies.

Question 4

Customs union

Answer 4

An agreement between countries where there is a common trade barrier set for non-member countries and free trade between member countries

Question 5

Common market (ie european economic area)

Answer 5

Free movement of all factors of production, unified non-tariff barriers, taxes

Question 6

Economic and monetary union

Answer 6

A common market plus all states and countries adopt a common currency.

Question 7

Advantages of monetary unions

Answer 7

• Exchange rate fluctuations decrease
• Increased currency credibility
• Price differences within the union become more obvious
• No conversion cost of currency

Question 8

Disadvantages of monetary unions

Answer 8

Interest rates are set, so cannot use monetary policy. Irresponsible countries may change value of currency for other countries. Cannot adjust currency value for exports. Cost of changing currencies.

Question 9

Complete economic integration

Answer 9

When a country unifies all economic policy tools ie fiscal and monetary with one new country being formed.

Question 10

Advantages of trading bloc

Answer 10

• Greater market size, increased competition, greater employment opportunities, greater political stability and world trade negotiations are easier.