Question 1

Explain why the EMS countries decided to fix their exchange rates against the German DM.

Accepted Answer

In this way,the other EMS coun

Question 2

Compared with inter-regional trade in the he United States,intra-EU trade

Accepted Answer

A) is far greater. 
B) is greater. 
C) is about the same. 
D) is less. 
E) is far less. 
A) is far greater. 
B) is greater. 
C) is about the same. 
D) is less. 
E) is far less.

Question 3

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 4

The theory of optimum currency areas predicts that

Accepted Answer

A) floating exchange rates are most appropriate for areas closely integrated through international trade and factor movements. 
B) fixed exchange rates are most appropriate for areas that are loosely integrated through international trade and factor movements. 
C) fixed exchange rates are most appropriate for areas closely integrated through international trade and factor movements. 
D) floating exchange rates are most appropriate for all countries in Europe. 
E) fixed exchange rates are most appropriate for all countries in Europe. 
A) floating exchange rates are most appropriate for areas closely integrated through international trade and factor movements. 
B) fixed exchange rates are most appropriate for areas that are loosely integrated through international trade and factor movements. 
C) fixed exchange rates are most appropriate for areas closely integrated through international trade and factor movements. 
D) floating exchange rates are most appropriate for all countries in Europe. 
E) fixed exchange rates are most appropriate for all countries in Europe.

Question 5

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 6

Using the GG-LL framework,analyze the effect of an increase in the size and frequency of sudden shifts in the demand for a country's exports.

Accepted Answer

Such a change pushes LL upward and to th

Question 7

Discuss the trends and implications of the following graph,especially with respect to the official start of the EMU on January 1,1999.

Accepted Answer

The extent of intra-EU country trade has

Question 8

Is the United States in danger of a sovereign default because,like countries in the euro zone,it has high current account deficits and levels of public debt?

Accepted Answer

No.The United States has a central bank

Question 9

What is fiscal federalism?

Accepted Answer

Fiscal federalism in the euro

Question 10

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 11

Which one of the following statements is TRUE for Norway,a non-euro country?

Accepted Answer

A) Of course,owners of capital that cannot be moved cannot avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows. 
B) Even owners of capital that cannot be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows. 
C) Owners of capital that cannot be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is closed to capital flows. 
D) Even owners of capital that can be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is closed to capital flows. 
E) Only owners of capital that can be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows. 
A) Of course,owners of capital that cannot be moved cannot avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows. 
B) Even owners of capital that cannot be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows. 
C) Owners of capital that cannot be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is closed to capital flows. 
D) Even owners of capital that can be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is closed to capital flows. 
E) Only owners of capital that can be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows.

Question 12

What is one way to offset the economic stability loss due to fixed exchange rates?

Accepted Answer

Fiscal federalism is one solution in whi

Question 13

A major economic

Accepted Answer

A) benefit of fixed exchange rates is that they simplify economic calculations and provide a more predictable basis for decisions that involve international transactions than do floating rates. 
B) benefit of floating exchange rates it that they simplify economic calculations and provide a more predictable basis for decisions that involve international transactions than do fixed rates. 
C) cost of fixed exchange rates it that they simplify economic calculations and provide a more predictable basis for decisions that involve international transactions than do currency board rates. 
D) benefit of flexible exchange rates it that they simplify economic calculations and provide a more predictable basis for decisions that involve international transactions than do crawling peg rates. 
E) benefit of fixed exchange rates is that the value of goods will remain constant across a large region of consumers. 
A) benefit of fixed exchange rates is that they simplify economic calculations and provide a more predictable basis for decisions that involve international transactions than do floating rates. 
B) benefit of floating exchange rates it that they simplify economic calculations and provide a more predictable basis for decisions that involve international transactions than do fixed rates. 
C) cost of fixed exchange rates it that they simplify economic calculations and provide a more predictable basis for decisions that involve international transactions than do currency board rates. 
D) benefit of flexible exchange rates it that they simplify economic calculations and provide a more predictable basis for decisions that involve international transactions than do crawling peg rates. 
E) benefit of fixed exchange rates is that the value of goods will remain constant across a large region of consumers.

Question 14

Did the 1957 Treaty of Rome turn the EU into a truly unified market?

Accepted Answer

A) Yes,it paved the way for the current EMU. 
B) No,although it established a customs union,it failed to remove barriers to the movement of goods and factors within Europe. 
C) No,it was only after the German unification and locating the ECB in Frankfurt that unity was achieved. 
D) No,since the Northern members of the EU had larger endowments of capital and skilled labor. 
E) No,the Treaty of Rome created more trade barriers between European countries. 
A) Yes,it paved the way for the current EMU. 
B) No,although it established a customs union,it failed to remove barriers to the movement of goods and factors within Europe. 
C) No,it was only after the German unification and locating the ECB in Frankfurt that unity was achieved. 
D) No,since the Northern members of the EU had larger endowments of capital and skilled labor. 
E) No,the Treaty of Rome created more trade barriers between European countries.

Question 15

Why does the LL schedule have a negative slope?

Accepted Answer

A) The economic stability loss from pegging to the area's currencies rises as the degree of economic interdependence rises. 
B) The economic stability loss from pegging to the area's currencies falls as the degree of economic interdependence rises. 
C) The economic stability loss from pegging to the area's currencies falls as the degree of economic interdependence falls. 
D) The economic stability loss from pegging to the area's currencies rises as the degree of economic activity increases. 
E) The economic stability loss from pegging to the area's currencies is constant,even as the degree of economic activity increases. 
A) The economic stability loss from pegging to the area's currencies rises as the degree of economic interdependence rises. 
B) The economic stability loss from pegging to the area's currencies falls as the degree of economic interdependence rises. 
C) The economic stability loss from pegging to the area's currencies falls as the degree of economic interdependence falls. 
D) The economic stability loss from pegging to the area's currencies rises as the degree of economic activity increases. 
E) The economic stability loss from pegging to the area's currencies is constant,even as the degree of economic activity increases.

Question 16

After Norway unilaterally pegs the krone to the euro,domestic money market disturbances will

Accepted Answer

A) no longer affect domestic output despite the continuation of float-rate regime against non-euro currencies. 
B) now have major effect on domestic output despite the continuation of float-rate regime against non-euro currencies. 
C) have some effect on domestic output despite the continuation of float-rate regime against non-euro currencies. 
D) have major effect on domestic employment despite the continuation of float-rate regime against non-euro currencies. 
E) no longer affect foreign imports despite the continuation of float-rate regime against non-euro currencies. 
A) no longer affect domestic output despite the continuation of float-rate regime against non-euro currencies. 
B) now have major effect on domestic output despite the continuation of float-rate regime against non-euro currencies. 
C) have some effect on domestic output despite the continuation of float-rate regime against non-euro currencies. 
D) have major effect on domestic employment despite the continuation of float-rate regime against non-euro currencies. 
E) no longer affect foreign imports despite the continuation of float-rate regime against non-euro currencies.

Question 17

To join the EMU,a country should have no more than

Accepted Answer

A) 1.5 percent inflation rate above the average of the three EU member states with the highest inflation. 
B) 3 percent inflation rate above the average of the three EU member states with the lowest inflation. 
C) 4 percent inflation rate above the average of the three EU member states with the lowest inflation. 
D) 1.5 percent inflation rate above the average of the three EU member states with the lowest inflation. 
E) 2 percent inflation rate above the average of the three EU member states with the lowest inflation. 
A) 1.5 percent inflation rate above the average of the three EU member states with the highest inflation. 
B) 3 percent inflation rate above the average of the three EU member states with the lowest inflation. 
C) 4 percent inflation rate above the average of the three EU member states with the lowest inflation. 
D) 1.5 percent inflation rate above the average of the three EU member states with the lowest inflation. 
E) 2 percent inflation rate above the average of the three EU member states with the lowest inflation.

Question 18

Explain why even owners of capital that cannot be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows.

Accepted Answer

The main reason is through diversificati

Question 19

Under the EMS,Germany set the system's

Accepted Answer

A) monetary policy while the other European countries pegged their currencies to the DM. 
B) fiscal policy while the other European countries pegged their currencies to the DM. 
C) monetary policy while the other European countries kept their currencies fluctuating relative to the DM. 
D) fiscal policy while the other European countries kept their currencies fluctuating relative to the DM. 
E) monetary policy,while other European countries maintained their traditional policies. 
A) monetary policy while the other European countries pegged their currencies to the DM. 
B) fiscal policy while the other European countries pegged their currencies to the DM. 
C) monetary policy while the other European countries kept their currencies fluctuating relative to the DM. 
D) fiscal policy while the other European countries kept their currencies fluctuating relative to the DM. 
E) monetary policy,while other European countries maintained their traditional policies.

Question 20

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.

Exam 21: Optimum Currency Areas and the Euro

Explain why the EMS countries decided to fix their exchange rates against the German DM.

Compared with inter-regional trade in the he United States,intra-EU trade

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

The theory of optimum currency areas predicts that

Since Norway has close trading links with the euro zone

Using the GG-LL framework,analyze the effect of an increase in the size and frequency of sudden shifts in the demand for a country's exports.

Discuss the trends and implications of the following graph,especially with respect to the official start of the EMU on January 1,1999.

Is the United States in danger of a sovereign default because,like countries in the euro zone,it has high current account deficits and levels of public debt?

What is fiscal federalism?

A krone/euro peg alone is

Which one of the following statements is TRUE for Norway,a non-euro country?

What is one way to offset the economic stability loss due to fixed exchange rates?

A major economic

Did the 1957 Treaty of Rome turn the EU into a truly unified market?

Why does the LL schedule have a negative slope?

After Norway unilaterally pegs the krone to the euro,domestic money market disturbances will

To join the EMU,a country should have no more than

Explain why even owners of capital that cannot be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows.

Under the EMS,Germany set the system's

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

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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