Question 1

To join the EMU, a country must have a public debt below or approaching a reference level of

Accepted Answer

A)  50 percent of its GDP. 
B)  10 percent of its GDP. 
C)  60 percent of its GDP. 
D)  100 percent of its GDP. 
E)  5 percent of its GDP. 
A)  50 percent of its GDP. 
B)  10 percent of its GDP. 
C)  60 percent of its GDP. 
D)  100 percent of its GDP. 
E)  5 percent of its GDP.

Question 2

Which one of the following statements is true?

Accepted Answer

A)  The less extensive are cross-border trade and factor movements, the greater is the gain from a fixed cross-border exchange rate. 
B)  The more extensive are cross-border trade and factor movements, the greater is the loss from a fixed cross-border exchange rate. 
C)  The more extensive are cross-border trade and factor movements, the greater is the gain from a fixed cross-border exchange rate. 
D)  The more extensive are cross-border trade, the greater is the loss from a fixed cross-border exchange rate. 
E)  The more extensive are factor movements, the greater is the loss from a fixed cross-border exchange rate. 
A)  The less extensive are cross-border trade and factor movements, the greater is the gain from a fixed cross-border exchange rate. 
B)  The more extensive are cross-border trade and factor movements, the greater is the loss from a fixed cross-border exchange rate. 
C)  The more extensive are cross-border trade and factor movements, the greater is the gain from a fixed cross-border exchange rate. 
D)  The more extensive are cross-border trade, the greater is the loss from a fixed cross-border exchange rate. 
E)  The more extensive are factor movements, the greater is the loss from a fixed cross-border exchange rate.

Question 3

"The costs and benefits for a country from joining a fixed-exchange rate area such as the EMS depend on how well-integrated its economy is with those of its potential partners." Discuss.

Accepted Answer

We will expand on this idea, which is ro

Question 4

The efficiency

Accepted Answer

A)  gain from a fixed exchange rate with the euro is smaller when trade between say, Norway and the euro zone, is extensive than when it is small. 
B)  gain from a fixed exchange rate with euro is greater when trade between say, Norway and the euro zone, is extensive than when it is small. 
C)  loss from a fixed exchange rate with the euro is smaller when trade between say, Norway and the euro zone, is extensive than when it is small. 
D)  gain from a fixed exchange rate with euro is the same as when trade between say, Norway and the euro zone, is extensive than when it is small. 
E)  gain from a fixed exchange rate with euro is the same as when trade between say, Norway and the euro zone, is small than when it is small. 
A)  gain from a fixed exchange rate with the euro is smaller when trade between say, Norway and the euro zone, is extensive than when it is small. 
B)  gain from a fixed exchange rate with euro is greater when trade between say, Norway and the euro zone, is extensive than when it is small. 
C)  loss from a fixed exchange rate with the euro is smaller when trade between say, Norway and the euro zone, is extensive than when it is small. 
D)  gain from a fixed exchange rate with euro is the same as when trade between say, Norway and the euro zone, is extensive than when it is small. 
E)  gain from a fixed exchange rate with euro is the same as when trade between say, Norway and the euro zone, is small than when it is small.

Question 5

In 2003,

Accepted Answer

A)  the UK became a member of EMU since the 5 economic tests were passed. 
B)  the UK became a member of EMU despite not passing the 5 economic tests. 
C)  the UK did not become a member of EMU even though all 5 economic tests were shown to be satisfied. 
D)  the UK did not become a member of EMU since it was not clear that the 5 economic tests were passed. 
E)  the UK became a member of EMU after prolonged negotiations. 
A)  the UK became a member of EMU since the 5 economic tests were passed. 
B)  the UK became a member of EMU despite not passing the 5 economic tests. 
C)  the UK did not become a member of EMU even though all 5 economic tests were shown to be satisfied. 
D)  the UK did not become a member of EMU since it was not clear that the 5 economic tests were passed. 
E)  the UK became a member of EMU after prolonged negotiations.

Question 6

The most important feature of the Single European Act of 1986, which amended the founding Treaty of Rome, was dropping the requirement of

Accepted Answer

A)  unanimous consent for measures related to market completion and making it a decision that only Germany and France agreed about. 
B)  unanimous consent for measures related to market completion. 
C)  majority consent for measures related to market completion and making it a decision that only Germany and France agreed about. 
D)  unanimous consent for measures related to agricultural policies only. 
E)  unanimous consent for measures related only to fiscal policies. 
A)  unanimous consent for measures related to market completion and making it a decision that only Germany and France agreed about. 
B)  unanimous consent for measures related to market completion. 
C)  majority consent for measures related to market completion and making it a decision that only Germany and France agreed about. 
D)  unanimous consent for measures related to agricultural policies only. 
E)  unanimous consent for measures related only to fiscal policies.

Question 7

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 8

How mobile is Europe's labor force?

Accepted Answer

Differences in language and cultural dis

Question 9

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 10

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 11

Fiscal federalism in the EU refers to

Accepted Answer

A)  one nation's control of the monetary policy of all the other nations. 
B)  freedom of member countries to leave the EU at any time. 
C)  the transfer of economic resources from members with healthy economies to those suffering economic setbacks. 
D)  one nation's freedom to abandon the Euro and use its own currency. 
E)  the transfer of economic resources between members with healthy economies. 
A)  one nation's control of the monetary policy of all the other nations. 
B)  freedom of member countries to leave the EU at any time. 
C)  the transfer of economic resources from members with healthy economies to those suffering economic setbacks. 
D)  one nation's freedom to abandon the Euro and use its own currency. 
E)  the transfer of economic resources between members with healthy economies.

Question 12

Who described 5 economic tests that must be passed before Britain would adopt the Euro?

Accepted Answer

A)  Tony Blair 
B)  Robert Mundell 
C)  Gordon Brown 
D)  Charles Bean 
E)  none of the above 
A)  Tony Blair 
B)  Robert Mundell 
C)  Gordon Brown 
D)  Charles Bean 
E)  none of the above

Question 13

Which of the following statements is the most accurate?

Accepted Answer

A)  Trade of EU countries with other EU countries has increased since the euro was introduced. 
B)  Trade of EU countries with other EU countries has decreased since the euro was introduced. 
C)  Trade of EU countries with other EU countries has increased in some years and decreased in other years since the euro was introduced. 
D)  Trade of EU countries with other EU countries can no longer be measured since both trading parties have the same currency. 
E)  Trade of EU countries with North American countries has decreased since the euro was introduced. 
A)  Trade of EU countries with other EU countries has increased since the euro was introduced. 
B)  Trade of EU countries with other EU countries has decreased since the euro was introduced. 
C)  Trade of EU countries with other EU countries has increased in some years and decreased in other years since the euro was introduced. 
D)  Trade of EU countries with other EU countries can no longer be measured since both trading parties have the same currency. 
E)  Trade of EU countries with North American countries has decreased since the euro was introduced.

Question 14

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 15

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 16

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

Accepted Answer

In this way, the other EMS cou

Question 17

Which one of the following statements is true?

Accepted Answer

A)  A fixed exchange rate automatically cushions the economy's output and employment by allowing an immediate change in the relative price of domestic and foreign goods. 
B)  A flexible exchange rate does not automatically cushions the economy's output and employment by allowing an immediate change in the relative price of domestic and foreign goods. 
C)  A flexible exchange rate automatically cushions the economy's output and employment by allowing an immediate change in the relative price of domestic and foreign goods. 
D)  A flexible exchange rate automatically cushions the economy's output and employment by allowing an immediate change in the absolute price of domestic and foreign goods. 
E)  A fixed exchange rate automatically cushions the economy's output and employment by allowing an immediate change in the absolute price of domestic and foreign goods. 
A)  A fixed exchange rate automatically cushions the economy's output and employment by allowing an immediate change in the relative price of domestic and foreign goods. 
B)  A flexible exchange rate does not automatically cushions the economy's output and employment by allowing an immediate change in the relative price of domestic and foreign goods. 
C)  A flexible exchange rate automatically cushions the economy's output and employment by allowing an immediate change in the relative price of domestic and foreign goods. 
D)  A flexible exchange rate automatically cushions the economy's output and employment by allowing an immediate change in the absolute price of domestic and foreign goods. 
E)  A fixed exchange rate automatically cushions the economy's output and employment by allowing an immediate change in the absolute price of domestic and foreign goods.

Question 18

The 1991 Maastricht Treaty can be best described as

Accepted Answer

A)  a peace treaty between Europe and the United States. 
B)  an agreement for the accession of the Netherlands into the EU. 
C)  an agreement for the creation of a free trade area. 
D)  a provision for the introduction of a single European currency and European central bank. 
E)  the beginning of a floating exchange rate European monetary system. 
A)  a peace treaty between Europe and the United States. 
B)  an agreement for the accession of the Netherlands into the EU. 
C)  an agreement for the creation of a free trade area. 
D)  a provision for the introduction of a single European currency and European central bank. 
E)  the beginning of a floating exchange rate European monetary system.

Question 19

When the economy is disturbed by a change in the output market,

Accepted Answer

A)  a fixed exchange rate has an advantage over a flexible rate. 
B)  a floating exchange rate has an advantage over a fixed rate. 
C)  a crawling peg exchange rate has an advantage over a flexible rate. 
D)  a floating exchange rate has the same effect as fixed rate. 
E)  a flexible exchange rate is not as effective as a fixed exchange rate. 
A)  a fixed exchange rate has an advantage over a flexible rate. 
B)  a floating exchange rate has an advantage over a fixed rate. 
C)  a crawling peg exchange rate has an advantage over a flexible rate. 
D)  a floating exchange rate has the same effect as fixed rate. 
E)  a flexible exchange rate is not as effective as a fixed exchange rate.

Question 20

How many countries are in the EU as of January 1, 2011?

Accepted Answer

A)  9 
B)  15 
C)  17 
D)  18 
E)  25 
A)  9 
B)  15 
C)  17 
D)  18 
E)  25

Exam 20: Optimum Currency Areas and the European Experience

To join the EMU, a country must have a public debt below or approaching a reference level of

Which one of the following statements is true?

"The costs and benefits for a country from joining a fixed-exchange rate area such as the EMS depend on how well-integrated its economy is with those of its potential partners." Discuss.

The efficiency

In 2003,

The most important feature of the Single European Act of 1986, which amended the founding Treaty of Rome, was dropping the requirement of

The theory of optimum currency areas predicts that

How mobile is Europe's labor force?

The intersection of GG and LL determines

A major economic

Fiscal federalism in the EU refers to

Who described 5 economic tests that must be passed before Britain would adopt the Euro?

Which of the following statements is the most accurate?

Under the EMS, Germany set the system's

The European Economic and Monetary Union

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

Which one of the following statements is true?

The 1991 Maastricht Treaty can be best described as

When the economy is disturbed by a change in the output market,

How many countries are in the EU as of January 1, 2011?

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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