Suppose taht Canada has domestic firms that could supply its entire market for radios at a price of $50, while U.S. firms could supply radios at $40 and Mexico at 430. Suppose that Canada initially has a 50 percent tariff on imports of radios and then forms a free trade area with Mexico. As a result. Canada realizes:
A. Trade creation, no trade diversion, and overall welfare gains
B. Trade creation, no trade diversion, and overall welfare losses
C. Trade diversion, no trade creation, and potential overall welfare losses
D. Trade diversion, trade creation, and potential overall welfare gains
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As of 2002, members of the European Monetary Union agreed to replace their currencies with the:
A. mark
B. dollar
C. franc
D. euro
The formation of the European Monetary Union is expected to entail benefits for member countries which include all of the following except:
A. Greater certainty for investors within the EMU
B. Lower costs of transactions within the EMU
C. Independent monetary policies run by the central bank of each member country
D. Enhanced competition among companies in member countries
According to the theory of optimum currency areas, a curruncy area has the least chance for success when:
A. Countries of the currency area have differing business cycles
B. Workers have a high degree of mobility across borders of the currency area
C. Prices and wages can be adjusted in reponse to economic disturbances
D. A single monetary policy affects all member countries in the same manner
A main disadvantage of the European Monetary Union is that:
A. Each member country losses the use of monetary policy as to tool to combat recession
B. There is a high degree of labor mobility among the member countries
C. Prices are highly flexible in response to changing economic conditions
D. Wages are highly flexible in response to changing economic conditions
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