Question 1

The EU countries were prompted to seek closer coordination of monetary policies and greater exchange rate stability in order

Accepted Answer

A)  to enhance Europe's role in the world monetary system. 
B)  to turn the European Union into a truly unified market. 
C)  both to enhance Europe's role in the world monetary system and to turn the European Union into a truly unified market. 
D)  both to turn the European Union into a truly unified market and to counter the rise of Japan in international financial markets. 
E)  to homogenize all European cultures. 
A)  to enhance Europe's role in the world monetary system. 
B)  to turn the European Union into a truly unified market. 
C)  both to enhance Europe's role in the world monetary system and to turn the European Union into a truly unified market. 
D)  both to turn the European Union into a truly unified market and to counter the rise of Japan in international financial markets. 
E)  to homogenize all European cultures.

Question 2

Why does the GG schedule have a positive slope?

Accepted Answer

A)  The monetary efficiency gain a country gets by joining a fixed exchange rate area falls as its economic integration with the area increases. 
B)  The monetary efficiency gain a country gets by joining a fixed exchange rate area rises as its economic integration with the area decreases. 
C)  The monetary efficiency gain a country gets by joining a fixed exchange rate area rises as its economic integration with the area increases. 
D)  The monetary efficiency gain a country gets by joining a floating exchange rate area rises as its economic integration with the area increases. 
E)  The monetary efficiency gain a country gets by joining a fixed exchange rate area is constant after their integration into the area. 
A)  The monetary efficiency gain a country gets by joining a fixed exchange rate area falls as its economic integration with the area increases. 
B)  The monetary efficiency gain a country gets by joining a fixed exchange rate area rises as its economic integration with the area decreases. 
C)  The monetary efficiency gain a country gets by joining a fixed exchange rate area rises as its economic integration with the area increases. 
D)  The monetary efficiency gain a country gets by joining a floating exchange rate area rises as its economic integration with the area increases. 
E)  The monetary efficiency gain a country gets by joining a fixed exchange rate area is constant after their integration into the area.

Question 3

Explain what the GG-LL model tells us about the benefits of extensive trade between EU member states and comment on the significance of similarity of economic structure in this framework.

Accepted Answer

The GG-LL model shows that extensive tra

Question 4

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 5

The level of fiscal federalism in the European Union is

Accepted Answer

A)  too big to cushion member countries from adverse economic events. 
B)  too small to cushion member countries from adverse economic events. 
C)  appropriate to cushion member countries from adverse economic events. 
D)  too big relative to the one in the U.S. 
E)  similar in its level to that of the U.S. 
A)  too big to cushion member countries from adverse economic events. 
B)  too small to cushion member countries from adverse economic events. 
C)  appropriate to cushion member countries from adverse economic events. 
D)  too big relative to the one in the U.S. 
E)  similar in its level to that of the U.S.

Question 6

The European Central Bank has its headquarter in:

Accepted Answer

A)  London. 
B)  Berlin. 
C)  Frankfurt. 
D)  Paris. 
E)  Brussels. 
A)  London. 
B)  Berlin. 
C)  Frankfurt. 
D)  Paris. 
E)  Brussels.

Question 7

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 8

Is Europe an optimum currency area?

Accepted Answer

An open question. I think yes, the area'

Question 9

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 10

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 11

What prompted the EU countries to seek closer coordination of monetary policies and greater exchange rate stability in the late 1960s?

Accepted Answer

(1) To enhance Europe's role i

Question 12

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 13

Explain how the German Bundesbank gained its low-inflation reputation?

Accepted Answer

Mainly, Germany's experience with hyperi

Question 14

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 15

If Norway's labor and capital markets are highly correlated with those of its euro zone neighbors,

Accepted Answer

A)  unemployed workers can easily move abroad to find work and domestic capital can be shifted to more profitable uses in other countries. 
B)  unemployed workers cannot easily move abroad to find work and domestic capital cannot be shifted to more profitable uses in other countries. 
C)  while unemployed workers can easily move abroad to find work, domestic capital cannot be shifted to more profitable uses in other countries. 
D)  while capital can easily move abroad to be put to a more profitable use, unemployed workers cannot easily move abroad to find work. 
E)  unemployment will rise, thanks to competition from foreign labor. 
A)  unemployed workers can easily move abroad to find work and domestic capital can be shifted to more profitable uses in other countries. 
B)  unemployed workers cannot easily move abroad to find work and domestic capital cannot be shifted to more profitable uses in other countries. 
C)  while unemployed workers can easily move abroad to find work, domestic capital cannot be shifted to more profitable uses in other countries. 
D)  while capital can easily move abroad to be put to a more profitable use, unemployed workers cannot easily move abroad to find work. 
E)  unemployment will rise, thanks to competition from foreign labor.

Question 16

The credibility theory of EMS had as an effect

Accepted Answer

A)  the inflation rates of member countries converging to the low German levels, a result that was not matched by similar countries who did not fix their exchange rates. 
B)  the inflation rates of member countries failing to converge to the low German levels. 
C)  the inflation rates of member countries converging to the low German levels, but other countries including U.S. and Britain also reduced inflation in this time period without fixing exchange rates. 
D)  the inflation rate in Germany rose to match the inflation rates of other member countries. 
E)  the inflation rate in the U.S. dropped to the low German levels. 
A)  the inflation rates of member countries converging to the low German levels, a result that was not matched by similar countries who did not fix their exchange rates. 
B)  the inflation rates of member countries failing to converge to the low German levels. 
C)  the inflation rates of member countries converging to the low German levels, but other countries including U.S. and Britain also reduced inflation in this time period without fixing exchange rates. 
D)  the inflation rate in Germany rose to match the inflation rates of other member countries. 
E)  the inflation rate in the U.S. dropped to the low German levels.

Question 17

Which of the following statements is most accurate?

Accepted Answer

A)  A rise in the size and frequency of country-specific disturbances to the joining country's product markets raises the critical level of economic integration at which the exchange rate area is joined. 
B)  A rise in the size and frequency of country-specific disturbances to the joining country's product markets lowers the critical level of economic integration at which the exchange rate area is joined. 
C)  A decline in the size and frequency of country-specific disturbances to the joining country's product markets raises the critical level of economic integration at which the exchange rate area is joined. 
D)  A rise in the size and frequency of country-specific disturbances to the joining country's product markets has no effect on the critical level of economic integration at which the exchange rate area is joined. 
E)  A decline in the size and frequency of country-specific disturbances to the joining country's product markets does not affect the level of economic integration at which the exchange rate area is joined. 
A)  A rise in the size and frequency of country-specific disturbances to the joining country's product markets raises the critical level of economic integration at which the exchange rate area is joined. 
B)  A rise in the size and frequency of country-specific disturbances to the joining country's product markets lowers the critical level of economic integration at which the exchange rate area is joined. 
C)  A decline in the size and frequency of country-specific disturbances to the joining country's product markets raises the critical level of economic integration at which the exchange rate area is joined. 
D)  A rise in the size and frequency of country-specific disturbances to the joining country's product markets has no effect on the critical level of economic integration at which the exchange rate area is joined. 
E)  A decline in the size and frequency of country-specific disturbances to the joining country's product markets does not affect the level of economic integration at which the exchange rate area is joined.

Question 18

Under ERM 2 rules, the national central bank of an EU member with its own currency can suspend euro intervention operations

Accepted Answer

A)  if there is a civil war. 
B)  if they result in money supply changes that threaten to destabilize the domestic price level. 
C)  if there is a current account deficit. 
D)  if there is a current account surplus. 
E)  if they result in a weakened current account. 
A)  if there is a civil war. 
B)  if they result in money supply changes that threaten to destabilize the domestic price level. 
C)  if there is a current account deficit. 
D)  if there is a current account surplus. 
E)  if they result in a weakened current account.

Question 19

The EMU created a currency area with more than

Accepted Answer

A)  200 million consumers. 
B)  250 million consumers. 
C)  about a billion. 
D)  500 million consumers. 
E)  300 million consumers. 
A)  200 million consumers. 
B)  250 million consumers. 
C)  about a billion. 
D)  500 million consumers. 
E)  300 million consumers.

Question 20

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

Exam 20: Optimum Currency Areas and the European Experience

The EU countries were prompted to seek closer coordination of monetary policies and greater exchange rate stability in order

Why does the GG schedule have a positive slope?

Explain what the GG-LL model tells us about the benefits of extensive trade between EU member states and comment on the significance of similarity of economic structure in this framework.

Which of the following statements is most accurate?

The level of fiscal federalism in the European Union is

The European Central Bank has its headquarter in:

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

Is Europe an optimum currency area?

Since Norway has close trading links with the euro zone,

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

What prompted the EU countries to seek closer coordination of monetary policies and greater exchange rate stability in the late 1960s?

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

Explain how the German Bundesbank gained its low-inflation reputation?

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

If Norway's labor and capital markets are highly correlated with those of its euro zone neighbors,

The credibility theory of EMS had as an effect

Which of the following statements is most accurate?

Under ERM 2 rules, the national central bank of an EU member with its own currency can suspend euro intervention operations

The EMU created a currency area with more than

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

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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