Globalisation - Why is the UK in the European Union

Question 1

Identify 5 member countries of the EU

Answer 1

Germany

United Kingdom

France

Italy

Spain

Question 2

What is the aim of the EU(2)

Answer 2

To promote a ‘single market’ in Europe

To abolish barriers to trade and promote economic and political integration

Question 3

What are the advantages of a single market(EU)(6)

Answer 3

Removal of trade barriers reduces the cost of trade - this leads to lower prices for consumers.

More choice for the consumer

Greater competition - within a single market, domestic monopolies now face competition from other European economies, leading to lower prices/higher quality

The single market enables countries to specialise and expand production leading to economies of scale, which may result in lower prices/higher quality

Free movement of labour helps give workers more choice and enables them to move to areas with better job opportunities.

Encourages inward investment and firms are more likely to locate in this large economic area.

Question 4

Describe some problems with a single market(EU)(2)

Answer 4

The creation of a single market tends to attract capital and jobs away from the countries that are poorer

Economies of scale allow multinational companies to drive out local firms

Question 5

What are the advantages of a single currency(Euro)(6)

Answer 5

Lower Transaction costs - If the UK joins the Euro, firms and tourists will not have to pay the cost of converting currencies; this will make trade more profitable

Eliminate exchange rate fluctuations - firms buy and sell for future delivery - having one currency removes the danger of the value changing before payment is made - increased trade

Increased inward investment - With stable exchange rates and the abolition of transaction costs it will be more desirable to invest in the UK.

Greater Price Transparency - With a common currency it is easier to compare prices in different EU countries. This could lead to greater price competition and lower prices

Lower Inflation - the ECB(which sets interest rates for the whole of the EU) has a strong tradition of keeping inflation low. Joining the Euro will help reduce inflation expectations

Higher employment - easier for people to cross countries to work as their salary is paid in the same currency as they use in their own country

Question 6

What are the disadvantages of a single currency(Euro)(5)

Answer 6

The UK Will Lose Ability to Set Interest Rates
-The ECB set interest rates for the whole Eurozone. However, this may not be suitable for the UK economy.

Low inflation may conflict with other objectives - It is argued that the ECB is too concerned with low inflation and ignores other macro economic objectives such as growth and unemployment

Conversion Costs - There will be a cost of replacing the currency and adjusting machines.

In the UK, interest rates have a significant impact on the economy because of the importance of the housing market. Many homeowners have a variable mortgage. Therefore changes in the interest rate will have a big effect