Which statement describes an economic union?

Which statement describes an economic union?

• A. Like a single market with a common external tariff
• B. All blocs of countries working together at any level of free trade agreement
• C. A system where exchange rates are free to fluctuate as a result of supply and demand
• D. GATT is an example of an economic union

Answer: (A)

An economic union is a high level of economic integration where member countries not only remove internal barriers to trade (like a single market) but also adopt a common external policy, such as a common external tariff. The description that fits this best is that it is like a single market with a common external tariff. This captures the idea of free movement of goods, services, and potentially factors of production inside the bloc, combined with a unified tariff policy for imports from outside the bloc. Why this fits: a single market ensures internal competition and freedom of movement, and adding a common external tariff creates a shared external stance toward non-members, which is a defining feature of economic unions. The other options don’t describe this level of integration: a general statement about free-trade agreements is too broad and non-specific; a system with freely fluctuating exchange rates is about currency policy, not trade integration structure; and GATT is a multilateral trade framework, not an economic union.

An economic union is a high level of economic integration where member countries not only remove internal barriers to trade (like a single market) but also adopt a common external policy, such as a common external tariff. The description that fits this best is that it is like a single market with a common external tariff. This captures the idea of free movement of goods, services, and potentially factors of production inside the bloc, combined with a unified tariff policy for imports from outside the bloc.

Why this fits: a single market ensures internal competition and freedom of movement, and adding a common external tariff creates a shared external stance toward non-members, which is a defining feature of economic unions. The other options don’t describe this level of integration: a general statement about free-trade agreements is too broad and non-specific; a system with freely fluctuating exchange rates is about currency policy, not trade integration structure; and GATT is a multilateral trade framework, not an economic union.