Posted: September 22nd, 2016

Explain the difference between free trade and protectionism and the role played by tariffs, quotas and deregulation within the EU.

LO2: Understand the economic rationale underpinning the European Union (EU)

Task 2a
Productivity growth has increased in Central and Eastern European countries relative to Western European countries. This has implications for the real exchange rate. Let’s look at the Czech Republic versus France (suppose they are the only two European countries).

For your task you are required to explain the role played by exchange rates in European business.

(This provides evidence for assessment criteria 2.1)
Task 2b
The Euro is a single currency arrangement that came into theoretical operation between 11 members of the European Union in January 1999. On January 1st 2002, 12 EU members got rid of their own currencies and introduced the Euro as their sole currency. A single currency means that there are no longer separate national monetary policies, and instead a new central bank has been set up – The European Central Bank – that conducts a Europe wide monetary policy, in particular the setting of interest rates. That means a loss of separate national monetary policies – interest rates and exchange rates. Should Germany want to introduce an economic policy to fight back against unemployment, it cannot do so as this can only come from the European Central Bank.

For your task you are required to analyse the advantages attributed to the adoption of a single European currency.

(This provides evidence for assessment criteria 2.2)

Task 2c
Explain the difference between free trade and protectionism and the role played by tariffs, quotas and deregulation within the EU.