Question 1

Which of the following is not true about the future of the EU and its associated institutions?

Accepted Answer

A)  The lack of a strong EU political center may limit the ECB's political legitimacy in the eyes of the European public. 
B)  There is a danger that voters throughout Europe will come to view the ECB as a distant and politically unaccountable group of technocrats unresponsive to people's needs. 
C)  Asymmetric economic development within different countries of the euro zone will be hard to handle through monetary policy. 
D)  Persistent barriers to labor mobility might continue to result in high levels of unemployment. 
E)  The majority of Europeans do not support the currency union. 
A)  The lack of a strong EU political center may limit the ECB's political legitimacy in the eyes of the European public. 
B)  There is a danger that voters throughout Europe will come to view the ECB as a distant and politically unaccountable group of technocrats unresponsive to people's needs. 
C)  Asymmetric economic development within different countries of the euro zone will be hard to handle through monetary policy. 
D)  Persistent barriers to labor mobility might continue to result in high levels of unemployment. 
E)  The majority of Europeans do not support the currency union. E

Question 2

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. D

Question 3

Shortly after their admission into the EMU, Ireland and the Netherlands

Accepted Answer

A)  both seceded from the EMU. 
B)  were expelled due to high levels of debt. 
C)  breached the inflation convergence criterion that had qualified them for admission to the EMU in the first place. 
D)  achieved inflation rates of zero percent. 
E)  abandoned the Euro as their national currency. 
A)  both seceded from the EMU. 
B)  were expelled due to high levels of debt. 
C)  breached the inflation convergence criterion that had qualified them for admission to the EMU in the first place. 
D)  achieved inflation rates of zero percent. 
E)  abandoned the Euro as their national currency. C

Question 4

The recent situation in Canada has been:

Accepted Answer

A)  "dwindling investment in oil sands projects in Northern Alberta, while growth has blossomed in the industrial heartland of Ontario and Quebec." 
B)  "heavy investment in oil sands projects in Northern Alberta, and blossoming growth in the industrial heartland of Ontario and Quebec." 
C)  "heavy investment in oil sands projects in Northern Alberta, but growth has stagnated in the industrial heartland of Ontario and Quebec." 
D)  "dwindling investment in oil sands projects in Northern Alberta combined with stagnant growth in the industrial heartland of Ontario and Quebec." 
E)  None of the above describe the recent situation in Canada. 
A)  "dwindling investment in oil sands projects in Northern Alberta, while growth has blossomed in the industrial heartland of Ontario and Quebec." 
B)  "heavy investment in oil sands projects in Northern Alberta, and blossoming growth in the industrial heartland of Ontario and Quebec." 
C)  "heavy investment in oil sands projects in Northern Alberta, but growth has stagnated in the industrial heartland of Ontario and Quebec." 
D)  "dwindling investment in oil sands projects in Northern Alberta combined with stagnant growth in the industrial heartland of Ontario and Quebec." 
E)  None of the above describe the recent situation in Canada.

Question 5

Explain why after, say Norway unilaterally pegs the krone to the euro, domestic money market disturbances will no longer affect domestic output despite the continuation of float-rate regime against non-euro currencies.

Accepted Answer

Because Norway's interest rate must equa

Question 6

How were the initial members of EMU chosen? How will new members be admitted? What is the structure of the complex of financial and political institutions that govern economic policy in the euro zone?

Accepted Answer

EU countries should satisfy:
(1) Low inf

Question 7

Discuss some of the main reasons why EU countries have favored mutually fixed exchanged rates over other exchange rate policies.

Accepted Answer

On the whole, the countries believe that

Question 8

Which of the following is true?

Accepted Answer

A)  All European countries are part of the EMU. 
B)  All Western European countries are part of the EMU. 
C)  Originally, 20 countries joined the EMU on January 1999. 
D)  All Western European countries are part of the EMU 
E)  Not all Western European countries are part of the EMU 
A)  All European countries are part of the EMU. 
B)  All Western European countries are part of the EMU. 
C)  Originally, 20 countries joined the EMU on January 1999. 
D)  All Western European countries are part of the EMU 
E)  Not all Western European countries are part of the EMU

Question 9

Richard Baldwin's estimate was that the euro increased the trade level of its users by

Accepted Answer

A)  only 5 percent. 
B)  only 9 percent. 
C)  over 30 percent. 
D)  over 50 percent. 
E)  only 12 percent. 
A)  only 5 percent. 
B)  only 9 percent. 
C)  over 30 percent. 
D)  over 50 percent. 
E)  only 12 percent.

Question 10

Discuss the problems that the EMU will face in the coming years.

Accepted Answer

(1) Europe is not an optimum currency ar

Question 11

A good measure of a country's level of economic integration with a currency area is

Accepted Answer

A)  the intersection of DD and GG. 
B)  the country's price level. 
C)  the compatibility of economic policies. 
D)  the intersection of AA and GG. 
E)  the extent of trade between the joining country and the currency area and the ease with which labor and capital can migrate between the joining country and the currency area. 
A)  the intersection of DD and GG. 
B)  the country's price level. 
C)  the compatibility of economic policies. 
D)  the intersection of AA and GG. 
E)  the extent of trade between the joining country and the currency area and the ease with which labor and capital can migrate between the joining country and the currency area.

Question 12

The monetary efficiency

Accepted Answer

A)  loss from pegging the Norwegian krone to the euro (for example) will be higher if factors of production can migrate freely between Norway and the euro area. 
B)  gain from pegging the Norwegian krone to the euro (for example) will be lower if factors of production can migrate freely between Norway and the euro area. 
C)  gain from pegging the Norwegian krone to the euro (for example) will be higher if factors of production can not migrate freely between Norway and the euro area. 
D)  gain from pegging say the Norwegian krone to the euro (for example) will be higher if factors of production can migrate freely between Norway and the euro area. 
E)  gain or loss from pegging the Norwegian krone to the Euro cannot be predicted using the available information. 
A)  loss from pegging the Norwegian krone to the euro (for example) will be higher if factors of production can migrate freely between Norway and the euro area. 
B)  gain from pegging the Norwegian krone to the euro (for example) will be lower if factors of production can migrate freely between Norway and the euro area. 
C)  gain from pegging the Norwegian krone to the euro (for example) will be higher if factors of production can not migrate freely between Norway and the euro area. 
D)  gain from pegging say the Norwegian krone to the euro (for example) will be higher if factors of production can migrate freely between Norway and the euro area. 
E)  gain or loss from pegging the Norwegian krone to the Euro cannot be predicted using the available information.

Question 13

Describe the problem and possible solution to the asymmetric shocks hitting Canada in the 2000s?

Accepted Answer

Canada's commodity exporters in the west

Question 14

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 15

Explain why when Norway unilaterally fixes its exchange rate against the euro but leaves the krone free to float against the non-euro currencies, it is unable to keep at least some monetary independence.

Accepted Answer

Any independent money supply change in N

Question 16

The problem of asymmetric shocks in Canada in the 2000s

Accepted Answer

A)  could be mitigated by appreciating the western currency against the eastern currency (if only separate currencies existed) 
B)  highlights the need for flexible exchange rates 
C)  was aggravated by increased inter-regional factor mobility 
D)  was solved in time for the 2010 Olympics 
E)  was solved by the secession of Quebec. 
A)  could be mitigated by appreciating the western currency against the eastern currency (if only separate currencies existed) 
B)  highlights the need for flexible exchange rates 
C)  was aggravated by increased inter-regional factor mobility 
D)  was solved in time for the 2010 Olympics 
E)  was solved by the secession of Quebec.

Question 17

Explain why the oil price shocks after 1973 made countries unwilling to revive the Bretton Woods system of fixed exchange rates. See also Chapter 19.

Accepted Answer

Using the GG-LL framework will help solv

Question 18

Using the GG-LL framework, analyze the effect of Libya subsidizing the Pakistani Nuclear programs.

Accepted Answer

This will shift the GG curve u

Question 19

Discuss the effects of the reunification of eastern and western Germany in 1990 on both Germany and its neighboring European countries.

Accepted Answer

Germany: boom, high interest rates to fi

Question 20

Discuss the benefits and costs of joining a fixed-exchange area.

Accepted Answer

Benefits: In general, gains from the sta

Exam 20: Optimum Currency Areas and the European Experience

Which of the following is not true about the future of the EU and its associated institutions?

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

Shortly after their admission into the EMU, Ireland and the Netherlands

The recent situation in Canada has been:

Explain why after, say Norway unilaterally pegs the krone to the euro, domestic money market disturbances will no longer affect domestic output despite the continuation of float-rate regime against non-euro currencies.

How were the initial members of EMU chosen? How will new members be admitted? What is the structure of the complex of financial and political institutions that govern economic policy in the euro zone?

Discuss some of the main reasons why EU countries have favored mutually fixed exchanged rates over other exchange rate policies.

Which of the following is true?

Richard Baldwin's estimate was that the euro increased the trade level of its users by

Discuss the problems that the EMU will face in the coming years.

A good measure of a country's level of economic integration with a currency area is

The monetary efficiency

Describe the problem and possible solution to the asymmetric shocks hitting Canada in the 2000s?

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.

Explain why when Norway unilaterally fixes its exchange rate against the euro but leaves the krone free to float against the non-euro currencies, it is unable to keep at least some monetary independence.

The problem of asymmetric shocks in Canada in the 2000s

Explain why the oil price shocks after 1973 made countries unwilling to revive the Bretton Woods system of fixed exchange rates. See also Chapter 19.

Using the GG-LL framework, analyze the effect of Libya subsidizing the Pakistani Nuclear programs.

Discuss the effects of the reunification of eastern and western Germany in 1990 on both Germany and its neighboring European countries.

Discuss the benefits and costs of joining a fixed-exchange area.

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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