Economics Integration

Question 1

Economic Integration

Answer 1

• Process whereby countries coordinate and link their economic policies to form trade policies and agreements
• Integration increases, barriers decrease

Question 2

Trading Bloc

Answer 2

A group of countries that join together in some form of agreement in order to increase trade between themselves and/or gain benefits from cooperation on some level

Question 3

Bilateral trade agreements

Answer 3

Agreement relating to trade between two countries, usually to remove tariffs and other barriers

Question 4

Multilateral trade agreements

Answer 4

Agreement relating to trade between multiple countries that usually aims to reduce or remove tariffs or other barriers, and where the agreement applies to all the countries involved. (Sometimes multilateral agreements involve the WTO)

Question 5

Stages of Economics Integration

Answer 5

Stage 0: No agreements in place
Stage 1: Preferential Trading Area (PTA)
Stage 2: Free Trade Area
Stage 3: Customs Union
Stage 4: Common Market
Stage 5: Monetary/Economic Union
Stage 6: Complete Economic Integration

Question 6

Stage 0: No agreements in place

Answer 6

High barriers to trade - tariffs, subsidies, quotas
China vs US
EU vs China

Question 7

Stage 1: Preferential Trading Area (PTA)

Answer 7

Give preferential access to certain products from certain countries by reducing or eliminating barriers/tariffs

Question 8

Stage 2: Free Trade Area

Answer 8

Agreement that gives free trade in certain/most goods between two or more countries, but each country has their own policy with other countries

Question 9

Stage 3: Customs Union

Answer 9

Agreement that gives free trade between countries AND they adopt common customs laws towards other countries.

Question 10

Stage 4: Common Market

Answer 10

A customs union with common policies on product regulation, and free movement of goods, services, capital and labour

Question 11

Stage 5: Economic/Monetary Union

Answer 11

• A common market with a common currency and a common central bank.
• Sometimes described as ‘Economic and Monetary Union’.

Question 12

Advantages of Monetary Union

Answer 12

• Eliminate exchange rates fluctuation
• Increased cross-border trade and investment
• A larger currency should be more stable against speculation
• Higher business confidence → less perceived risk involved → internal growth and trade growth
• Transaction costs eliminated

Question 13

Disadvantages of a Monetary Union

Answer 13

• Interest rates are decided by the central bank, so countries are unable to set their own as a tool of monetary policy to fix inflation/unemployment/growth
• Individual countries cannot alter their exchange rate to affect their international competitiveness of their exports or their import costs.
• Initial costs of becoming a union are very high.

Question 14

Stage 6: Complete Economic Integration

Answer 14

The final stage of integration where individual countries have no control of economic policy.