Economic integration

Question 1

What is Economic integration?

Answer 1

Cooperation between countries and coordination of economic policies, facilitating the free exchange of goods and services, labor, investments and technology

Question 2

What are Preferential Trade Agreements (PTA)?

Answer 2

Agreement between two or more countries to lower trade barriers between each other on particular products; trade barriers can remain on other products and imports from non-member countries

Question 3

What are Bilateral trade agreements?

Answer 3

Between two countries

Question 4

What are Multilateral trade agreements?

Answer 4

Between many countries

Question 5

What are Regional trade agreements?

Answer 5

Between a group of countries within a geographical region

Question 6

What are Trading blocks?

Answer 6

Income diverted out of the circular flow and not spent on goods and services

Question 7

What is a Free Trade area (FTA)?

Answer 7

Group of countries that agree to gradually eliminate trade barriers between themselves, but no common external trade barriers. This creates a problem as products could enter the FTA via the country with the lowest trade barriers, hurting domestic production of countries with higher trade barriers (“rule of origin problem”)

Question 8

What is a Customs union?

Answer 8

FTA + common external trade barriers; all member countries must impose the same trade barriers to non-members to eliminate the “rule of origin” problem. However, it could be difficult to agree on common external barriers

Question 9

What is a Common market?

Answer 9

Customs union + eliminate all restrictions on movements of any factors of production (mainly labor and capital) within the common market, promoting more efficient utilization of resources as unemployed workers could move to countries with labor shortages. However it could be difficult to coordinate economic policies between members

Question 10

What is a Monetary union?

Answer 10

Common market + common central bank, common currency and common monetary/exchange rate policy, together with coordination of macroeconomic goals (inflation targets) and fiscal budgets (restrictions on the size of public debt)

Question 11

What are Terms of trade?

Answer 11

A measure of export prices relative to import prices (both export and import prices are measured in domestic currency)