Question 1

A krone/euro peg alone is

Accepted Answer

A)  not enough to provide automatic stability in the face of any monetary shocks that shift the AA schedule. 
B)  enough to provide automatic stability in the face of any monetary shocks that shift the AA schedule. 
C)  not enough to provide automatic stability in the face of any monetary shocks that shift the AA schedule, provided fiscal policy will be used as well. 
D)  enough to provide automatic stability in the face of any monetary shocks that shift the AA schedule, provided the government runs a budget deficit. 
E)  enough to provide partial stability in the face of smaller monetary shocks that shift the AA schedule. 
A)  not enough to provide automatic stability in the face of any monetary shocks that shift the AA schedule. 
B)  enough to provide automatic stability in the face of any monetary shocks that shift the AA schedule. 
C)  not enough to provide automatic stability in the face of any monetary shocks that shift the AA schedule, provided fiscal policy will be used as well. 
D)  enough to provide automatic stability in the face of any monetary shocks that shift the AA schedule, provided the government runs a budget deficit. 
E)  enough to provide partial stability in the face of smaller monetary shocks that shift the AA schedule.

Question 2

Describe the single supervisory mechanism or SSM proposed by EU leaders in June of 2012.

Accepted Answer

The SSM involved granting the

Question 3

How much trade do currency unions create?

Accepted Answer

The main result is that currency unions

Question 4

The credibility theory of the EMS implies in effect that the political costs of violating international exchange rate agreements

Accepted Answer

A)  cannot restrain governments from depreciating their currency. 
B)  can restrain governments from depreciating their currency. 
C)  cannot restrain governments from depreciating their currency in the short run. 
D)  cannot restrain governments from depreciating their currency in the long run. 
E)  can control the political policies of member nations. 
A)  cannot restrain governments from depreciating their currency. 
B)  can restrain governments from depreciating their currency. 
C)  cannot restrain governments from depreciating their currency in the short run. 
D)  cannot restrain governments from depreciating their currency in the long run. 
E)  can control the political policies of member nations.

Question 5

Describe the main provisions of the Maastricht Treaty of 1991.

Accepted Answer

Called for a single currency b

Question 6

Since Norway has close trading links with the euro zone

Accepted Answer

A)  a small reduction in its price will lead to an increase in euro zone demand for Norwegian goods that is large relative to Norway's output. Thus, full employment can be restored fairly quickly. 
B)  a small reduction in its price will lead to a decrease in euro zone demand for Norwegian goods that is large relative to Norway's output. Thus, full employment can be restored fairly quickly. 
C)  a small reduction in its price will lead to an increase in euro zone demand for Norwegian goods that is small relative to Norway's output. Thus, full employment can be restored fairly quickly. 
D)  a big reduction in its price will lead to an increase in euro zone demand for Norwegian goods that is large relative to Norway's output. Thus, full employment can be restored fairly quickly. 
E)  a big reduction in its price will lead to a decrease in euro zone demand for Norwegian goods that is small relative to Norway's output. Thus, full employment can be restored fairly quickly. 
A)  a small reduction in its price will lead to an increase in euro zone demand for Norwegian goods that is large relative to Norway's output. Thus, full employment can be restored fairly quickly. 
B)  a small reduction in its price will lead to a decrease in euro zone demand for Norwegian goods that is large relative to Norway's output. Thus, full employment can be restored fairly quickly. 
C)  a small reduction in its price will lead to an increase in euro zone demand for Norwegian goods that is small relative to Norway's output. Thus, full employment can be restored fairly quickly. 
D)  a big reduction in its price will lead to an increase in euro zone demand for Norwegian goods that is large relative to Norway's output. Thus, full employment can be restored fairly quickly. 
E)  a big reduction in its price will lead to a decrease in euro zone demand for Norwegian goods that is small relative to Norway's output. Thus, full employment can be restored fairly quickly.

Question 7

When Norway unilaterally fixes its exchange rate against the euro and leaves the krone

Accepted Answer

A)  free to float against the non-euro currencies, it is able to keep at least some monetary independence. 
B)  free to float against the non-euro currencies, it is unable to keep at least some monetary independence. 
C)  free to float against the non-euro currencies, it is able to keep its monetary independence. 
D)  run by crawling peg against the non-euro currencies, it is able to keep at least some monetary independence. 
E)  fixed against the non-euro currencies, it is unable to keep its monetary independence. 
A)  free to float against the non-euro currencies, it is able to keep at least some monetary independence. 
B)  free to float against the non-euro currencies, it is unable to keep at least some monetary independence. 
C)  free to float against the non-euro currencies, it is able to keep its monetary independence. 
D)  run by crawling peg against the non-euro currencies, it is able to keep at least some monetary independence. 
E)  fixed against the non-euro currencies, it is unable to keep its monetary independence.

Question 8

What are the biggest advantages the U.S. has over the EU in terms of being an Optimum Currency Area?

Accepted Answer

A)  low mobility of labor, higher labor productivity, lower level of intra-regional trade 
B)  high unionization of U.S. labor force 
C)  high mobility of labor force, more transfer payments between regions 
D)  higher uniformity of population's taste in consumption 
E)  more specialized labor force and natural resource advantages 
A)  low mobility of labor, higher labor productivity, lower level of intra-regional trade 
B)  high unionization of U.S. labor force 
C)  high mobility of labor force, more transfer payments between regions 
D)  higher uniformity of population's taste in consumption 
E)  more specialized labor force and natural resource advantages

Question 9

To join the EMU, a country must have

Accepted Answer

A)  a public-sector deficit no higher than 3 percent of its GDP in general. 
B)  a public-sector deficit no higher than 2 percent of its GDP in general. 
C)  a public-sector deficit no higher than 1 percent of its GDP in general. 
D)  a zero public-sector deficit. 
E)  a public-sector deficit no higher than 4 percent of its GDP in general. 
A)  a public-sector deficit no higher than 3 percent of its GDP in general. 
B)  a public-sector deficit no higher than 2 percent of its GDP in general. 
C)  a public-sector deficit no higher than 1 percent of its GDP in general. 
D)  a zero public-sector deficit. 
E)  a public-sector deficit no higher than 4 percent of its GDP in general.

Question 10

The German central bank in the European Monetary System, 1979-1998

Accepted Answer

A)  was very inflation-averse. 
B)  was moderately inflation-averse. 
C)  was willing to accept inflation. 
D)  lacked control over inflation since it had fixed its exchange rate. 
E)  lacked sufficient reserves. 
A)  was very inflation-averse. 
B)  was moderately inflation-averse. 
C)  was willing to accept inflation. 
D)  lacked control over inflation since it had fixed its exchange rate. 
E)  lacked sufficient reserves.

Question 11

The European Economic and Monetary Union

Accepted Answer

A)  set up a single currency and sole bank for European economic monetary policy. 
B)  eliminated all barriers to trade such as tax differentials between borders. 
C)  produced a single government for handling European affairs. 
D)  created the Common Agricultural Pact. 
E)  eliminated all local currencies in Western Europe. 
A)  set up a single currency and sole bank for European economic monetary policy. 
B)  eliminated all barriers to trade such as tax differentials between borders. 
C)  produced a single government for handling European affairs. 
D)  created the Common Agricultural Pact. 
E)  eliminated all local currencies in Western Europe.

Question 12

Which of the following statements is MOST accurate?

Accepted Answer

A)  A low degree of economic integration between a country and the fixed exchange rate area that it joins reduces the resulting economic stability loss due to output market disturbances. 
B)  A high degree of economic integration between a country and the fixed exchange rate area that it joins reduces the resulting economic stability loss due to output market disturbances. 
C)  A high degree of economic integration between a country and the fixed exchange rate area that it joins increases the resulting economic stability loss due to output market disturbances. 
D)  A complete lack of economic integration between a country and the fixed exchange rate area that it joins reduces the resulting economic stability loss due to output market disturbances. 
E)  A low degree of economic integration between a country and the fixed exchange rate area that it joins increases the resulting economic stability loss due to output market disturbances. 
A)  A low degree of economic integration between a country and the fixed exchange rate area that it joins reduces the resulting economic stability loss due to output market disturbances. 
B)  A high degree of economic integration between a country and the fixed exchange rate area that it joins reduces the resulting economic stability loss due to output market disturbances. 
C)  A high degree of economic integration between a country and the fixed exchange rate area that it joins increases the resulting economic stability loss due to output market disturbances. 
D)  A complete lack of economic integration between a country and the fixed exchange rate area that it joins reduces the resulting economic stability loss due to output market disturbances. 
E)  A low degree of economic integration between a country and the fixed exchange rate area that it joins increases the resulting economic stability loss due to output market disturbances.

Question 13

The intersection of GG and LL determines

Accepted Answer

A)  the optimal level of integration desired by Norway. 
B)  the maximum integration level desired by Norway. 
C)  the minimum level of integration that will cause Norway to join the fixed exchange rate regime. 
D)  the maximum level of integration that will cause Norway to join the fixed exchange rate regime. 
E)  the maximum level of integration that can aid Norway if it joins the fixed exchange rate regime. 
A)  the optimal level of integration desired by Norway. 
B)  the maximum integration level desired by Norway. 
C)  the minimum level of integration that will cause Norway to join the fixed exchange rate regime. 
D)  the maximum level of integration that will cause Norway to join the fixed exchange rate regime. 
E)  the maximum level of integration that can aid Norway if it joins the fixed exchange rate regime.

Question 14

What event in 2009 ignited the euro crisis?

Accepted Answer

Greece elected a new government in 2009

Question 15

How mobile is Europe's labor force?

Accepted Answer

Differences in language and culture disc

Question 16

Which of the following best defines an optimum currency area?

Accepted Answer

A)  a group of nations sharing the same currency 
B)  a group of regions in close proximity to each other 
C)  a group of regions who operate under similar economic policies 
D)  a group of regions with economies closely linked by factor mobility and by trade in goods and services 
E)  a group of nations that engage in free trade with each other 
A)  a group of nations sharing the same currency 
B)  a group of regions in close proximity to each other 
C)  a group of regions who operate under similar economic policies 
D)  a group of regions with economies closely linked by factor mobility and by trade in goods and services 
E)  a group of nations that engage in free trade with each other

Question 17

A recent study by Andrew Rose of the University of California showed that, on average, two countries that are members of the same currency union

Accepted Answer

A)  trade three times as much with each other as countries that do not share a currency. 
B)  trade twenty times as much with each other as countries that do not share a currency. 
C)  trade ten times as much with each other as countries that do not share a currency. 
D)  trade six times as much with each other as countries that do not share a currency. 
E)  trade twice as much with each other as countries that do not share a currency. 
A)  trade three times as much with each other as countries that do not share a currency. 
B)  trade twenty times as much with each other as countries that do not share a currency. 
C)  trade ten times as much with each other as countries that do not share a currency. 
D)  trade six times as much with each other as countries that do not share a currency. 
E)  trade twice as much with each other as countries that do not share a currency.

Question 18

Why did the EU countries move away from the EMS toward the goal of a single shared currency?

Accepted Answer

(1) To produce a greater degree of Europ

Question 19

Which of the following statements is MOST accurate?

Accepted Answer

A)  The countries of southern Europe are better endowed with capital and skilled labor than the countries of northern Europe. 
B)  The countries of northern Europe are better endowed with capital and skilled labor than the countries of southern Europe. 
C)  EU products that make intensive use of high-skill labor are most likely to come from Portugal. 
D)  EU products that make intensive use of low-skill labor are most likely to come from Great Britain. 
E)  The countries of eastern Europe are better endowed with capital and skilled labor than the countries of western Europe. 
A)  The countries of southern Europe are better endowed with capital and skilled labor than the countries of northern Europe. 
B)  The countries of northern Europe are better endowed with capital and skilled labor than the countries of southern Europe. 
C)  EU products that make intensive use of high-skill labor are most likely to come from Portugal. 
D)  EU products that make intensive use of low-skill labor are most likely to come from Great Britain. 
E)  The countries of eastern Europe are better endowed with capital and skilled labor than the countries of western Europe.

Question 20

The credibility theory of the EMS implies in effect that the political costs of violating international exchange rate agreements

Accepted Answer

A)  cannot restrain governments from depreciating their currency to gain the short-term advantage of an economic boom at the long-term cost of higher inflation. 
B)  can restrain governments from depreciating their currency to gain the short-term advantage of an economic boom at the long-term cost of higher inflation. 
C)  cannot restrain governments from depreciating their currency in the short run. 
D)  cannot restrain governments from depreciating their currency in the long run. 
E)  cannot restrain governments from depreciating their currency to gain the long-term advantage of an economic boom. 
A)  cannot restrain governments from depreciating their currency to gain the short-term advantage of an economic boom at the long-term cost of higher inflation. 
B)  can restrain governments from depreciating their currency to gain the short-term advantage of an economic boom at the long-term cost of higher inflation. 
C)  cannot restrain governments from depreciating their currency in the short run. 
D)  cannot restrain governments from depreciating their currency in the long run. 
E)  cannot restrain governments from depreciating their currency to gain the long-term advantage of an economic boom.

Exam 21: Optimum Currency Areas and the Euro

A krone/euro peg alone is

Describe the single supervisory mechanism or SSM proposed by EU leaders in June of 2012.

How much trade do currency unions create?

The credibility theory of the EMS implies in effect that the political costs of violating international exchange rate agreements

Describe the main provisions of the Maastricht Treaty of 1991.

Since Norway has close trading links with the euro zone

When Norway unilaterally fixes its exchange rate against the euro and leaves the krone

What are the biggest advantages the U.S. has over the EU in terms of being an Optimum Currency Area?

To join the EMU, a country must have

The German central bank in the European Monetary System, 1979-1998

The European Economic and Monetary Union

Which of the following statements is MOST accurate?

The intersection of GG and LL determines

What event in 2009 ignited the euro crisis?

How mobile is Europe's labor force?

Which of the following best defines an optimum currency area?

A recent study by Andrew Rose of the University of California showed that, on average, two countries that are members of the same currency union

Why did the EU countries move away from the EMS toward the goal of a single shared currency?

Which of the following statements is MOST accurate?

The credibility theory of the EMS implies in effect that the political costs of violating international exchange rate agreements

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Developing Countries: Growth, Crisis, and Reform

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