Question 1

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 2

Explain why the European Union's current combination of rapid capital migration with limited labor migration may actually raise the cost of adjusting to product market shocks without exchange rate change?

Accepted Answer

If the Netherlands suffers an unfavorabl

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 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.

Question 4

The result of the reunification of eastern and western Germany in 1990

Accepted Answer

A)  was a boom in Germany and higher inflation, with no effect on nearby countries. 
B)  was a recession in Germany and lower inflation, with no effect on nearby countries. 
C)  was a boom in Germany and higher inflation, and, with other EMS countries' commitment to fixed exchange rates, a deep recession in nearby countries. 
D)  was a recession in Germany and lower inflation, and, with other EMS countries' commitment to fixed exchange rates, a deep recession in nearby countries. 
E)  was a recession in Germany and lower inflation, causing a boom in nearby countries. 
A)  was a boom in Germany and higher inflation, with no effect on nearby countries. 
B)  was a recession in Germany and lower inflation, with no effect on nearby countries. 
C)  was a boom in Germany and higher inflation, and, with other EMS countries' commitment to fixed exchange rates, a deep recession in nearby countries. 
D)  was a recession in Germany and lower inflation, and, with other EMS countries' commitment to fixed exchange rates, a deep recession in nearby countries. 
E)  was a recession in Germany and lower inflation, causing a boom in nearby countries.

Question 5

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 6

An inflation-prone country

Accepted Answer

A)  gains from vesting its monetary policy decisions with a "conservative" central bank. 
B)  loses from vesting its monetary policy decisions with a "conservative" central bank. 
C)  gains from vesting its fiscal policy decisions with a "conservative" central bank. 
D)  loses from vesting its fiscal policy decisions with a "conservative" central bank. 
E)  remains constant when vesting its fiscal policy decisions with a "conservative central bank. 
A)  gains from vesting its monetary policy decisions with a "conservative" central bank. 
B)  loses from vesting its monetary policy decisions with a "conservative" central bank. 
C)  gains from vesting its fiscal policy decisions with a "conservative" central bank. 
D)  loses from vesting its fiscal policy decisions with a "conservative" central bank. 
E)  remains constant when vesting its fiscal policy decisions with a "conservative central bank.

Question 7

A country that joins an exchange rate area

Accepted Answer

A)  gives up its ability to use the exchange rate for the purpose of stabilizing output and employment. 
B)  does not give up its ability to use the exchange rate and monetary policy for the purpose of stabilizing output and employment. 
C)  gives up its ability to use the exchange rate and monetary policy for the purpose of stabilizing output and employment. 
D)  gives up its ability to use only monetary policy for the purpose of stabilizing output and employment. 
E)  does not gives up its ability to use only monetary policy for the purpose of stabilizing output and employment. 
A)  gives up its ability to use the exchange rate for the purpose of stabilizing output and employment. 
B)  does not give up its ability to use the exchange rate and monetary policy for the purpose of stabilizing output and employment. 
C)  gives up its ability to use the exchange rate and monetary policy for the purpose of stabilizing output and employment. 
D)  gives up its ability to use only monetary policy for the purpose of stabilizing output and employment. 
E)  does not gives up its ability to use only monetary policy for the purpose of stabilizing output and employment.

Question 8

Draw the graph of the GG and LL schedules and explain the logic behind the slopes of each of the schedules.

Accepted Answer

The correct graph has "degree of economi

Question 9

Describe the main provisions of the Maastricht Treaty of 1991.

Accepted Answer

Called for a single currency b

Question 10

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 11

On average, from 1978-1996, the country with the highest rate of annual inflation was

Accepted Answer

A)  France. 
B)  Ireland. 
C)  Italy. 
D)  Belgium. 
E)  Netherlands. 
A)  France. 
B)  Ireland. 
C)  Italy. 
D)  Belgium. 
E)  Netherlands.

Question 12

What is the purpose of the following figure?

Accepted Answer

The purpose of the figure is to show the

Question 13

Describe the effects of the reunification of eastern and western Germany in 1990 on both Germany and its neighboring European countries using the AA-DD framework.

Accepted Answer

As for Germany a period of boom with hig

Question 14

Explain why it may make sense for the United States, Japan, and Europe to allow their mutual exchange rate to float?

Accepted Answer

Even though these regions trad

Question 15

Which of the following statements is true?

Accepted Answer

A)  The 1957 Treaty of Rome founded the EU and created a custom union. 
B)  The 1957 Treaty of Rome founded the EU. 
C)  The 1957 Treaty of Rome founded the euro. 
D)  The 1957 Treaty of Rome founded the European Central Bank. 
E)  The 1957 Treaty of Rome founded the Stability and Growth Pact. known as SGP. 
A)  The 1957 Treaty of Rome founded the EU and created a custom union. 
B)  The 1957 Treaty of Rome founded the EU. 
C)  The 1957 Treaty of Rome founded the euro. 
D)  The 1957 Treaty of Rome founded the European Central Bank. 
E)  The 1957 Treaty of Rome founded the Stability and Growth Pact. known as SGP.

Question 16

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 17

How the European single currency evolved?

Accepted Answer

The answer is related to the c

Question 18

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 19

"Given that labor remains relatively immobile within Europe, the European Union's success in liberalizing its capital flows may have worked perversely to worsen the economic stability loss due to the process of monetary unification." Discuss.

Accepted Answer

Probably right. This is another example

Question 20

How much trade do currency unions create?

Accepted Answer

The main result is that currency unions

Exam 20: Optimum Currency Areas and the European Experience

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

Explain why the European Union's current combination of rapid capital migration with limited labor migration may actually raise the cost of adjusting to product market shocks without exchange rate change?

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

The result of the reunification of eastern and western Germany in 1990

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.

An inflation-prone country

A country that joins an exchange rate area

Draw the graph of the GG and LL schedules and explain the logic behind the slopes of each of the schedules.

Describe the main provisions of the Maastricht Treaty of 1991.

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

On average, from 1978-1996, the country with the highest rate of annual inflation was

What is the purpose of the following figure?

Describe the effects of the reunification of eastern and western Germany in 1990 on both Germany and its neighboring European countries using the AA-DD framework.

Explain why it may make sense for the United States, Japan, and Europe to allow their mutual exchange rate to float?

Which of the following statements is true?

To join the EMU, a country must have

How the European single currency evolved?

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

"Given that labor remains relatively immobile within Europe, the European Union's success in liberalizing its capital flows may have worked perversely to worsen the economic stability loss due to the process of monetary unification." Discuss.

How much trade do currency unions create?

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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