Question 1

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 2

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 3

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 4

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 5

The main function of the 1997 Stability and Growth Pact (SGP) was to

Accepted Answer

A)  exclude a highly indebted EMU country 
B)  enhance cooperation between France and Germany. 
C)  tighten the fiscal constraints. 
D)  distribute the Euro banknote among European central banks and to create a timetable for the imposition of financial penalties on countries that fail to correct situations of "excessive" deficits and debt promptly enough. 
E)  determine specialized penalties for each member nation. 
A)  exclude a highly indebted EMU country 
B)  enhance cooperation between France and Germany. 
C)  tighten the fiscal constraints. 
D)  distribute the Euro banknote among European central banks and to create a timetable for the imposition of financial penalties on countries that fail to correct situations of "excessive" deficits and debt promptly enough. 
E)  determine specialized penalties for each member nation.

Question 6

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 7

When the exchange rate is

Accepted Answer

A)  flexible, purposeful stabilization is more difficult because monetary policy has no power at all to affect domestic output and employment. 
B)  fixed, purposeful stabilization is less difficult because monetary policy has no power at all to affect domestic output and employment. 
C)  fixed, purposeful stabilization is more difficult because monetary policy has no power at all to affect domestic output and employment. 
D)  a crawling peg, rather than fixed, purposeful stabilization is more difficult because monetary policy has no power at all to affect domestic output and employment. 
E)  fixed rather than crawling peg purposeful stabilization is more difficult because fiscal policy has no power at all to affect domestic output and employment. 
A)  flexible, purposeful stabilization is more difficult because monetary policy has no power at all to affect domestic output and employment. 
B)  fixed, purposeful stabilization is less difficult because monetary policy has no power at all to affect domestic output and employment. 
C)  fixed, purposeful stabilization is more difficult because monetary policy has no power at all to affect domestic output and employment. 
D)  a crawling peg, rather than fixed, purposeful stabilization is more difficult because monetary policy has no power at all to affect domestic output and employment. 
E)  fixed rather than crawling peg purposeful stabilization is more difficult because fiscal policy has no power at all to affect domestic output and employment.

Question 8

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 9

During the period from 1978-2012, the difference between annual inflation rates of EU countries and the German inflation rate

Accepted Answer

A)  grew at an accelerating rate. 
B)  remained fairly constant. 
C)  largely disappeared. 
D)  went through periods of hyperinflation. 
E)  trended upward at a declining rate. 
A)  grew at an accelerating rate. 
B)  remained fairly constant. 
C)  largely disappeared. 
D)  went through periods of hyperinflation. 
E)  trended upward at a declining rate.

Question 10

Which one of the following countries was the "spark" that ignited the 2009 euro crisis?

Accepted Answer

A)  China 
B)  Greece 
C)  England 
D)  Spain 
E)  Germany 
A)  China 
B)  Greece 
C)  England 
D)  Spain 
E)  Germany

Question 11

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 12

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 13

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

Accepted Answer

Mainly, Germany's experience with hyperi

Question 14

What is the "three-pronged approach" to organizing a banking union?

Accepted Answer

Centralize financial supervisi

Question 15

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 16

How did the European single currency evolve?

Accepted Answer

The answer is related to the c

Question 17

Which of the following best defines an optimum currency area?

Accepted Answer

A)  a group of nations sharing the same currency 
B)  a group of regions in close proximity to each other 
C)  a group of regions who operate under similar economic policies 
D)  a group of regions with economies closely linked by factor mobility and by trade in goods and services 
E)  a group of nations that engage in free trade with each other 
A)  a group of nations sharing the same currency 
B)  a group of regions in close proximity to each other 
C)  a group of regions who operate under similar economic policies 
D)  a group of regions with economies closely linked by factor mobility and by trade in goods and services 
E)  a group of nations that engage in free trade with each other

Question 18

What led to the over-extension of credit by some private banks and central banks in the euro zone prior to the 2009 euro crisis?

Accepted Answer

Differences in interest rates in euro zo

Question 19

What are the biggest advantages the U.S. has over the EU in terms of being an Optimum Currency Area?

Accepted Answer

A)  low mobility of labor, higher labor productivity, lower level of intra-regional trade 
B)  high unionization of U.S. labor force 
C)  high mobility of labor force, more transfer payments between regions 
D)  higher uniformity of population's taste in consumption 
E)  more specialized labor force and natural resource advantages 
A)  low mobility of labor, higher labor productivity, lower level of intra-regional trade 
B)  high unionization of U.S. labor force 
C)  high mobility of labor force, more transfer payments between regions 
D)  higher uniformity of population's taste in consumption 
E)  more specialized labor force and natural resource advantages

Question 20

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.

Exam 21: Optimum Currency Areas and the Euro

Why does the GG schedule have a positive slope?

Fiscal federalism in the EU refers to

Which one of the following statements is TRUE?

The 1991 Maastricht Treaty can be best described as

The main function of the 1997 Stability and Growth Pact (SGP) was to

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

When the exchange rate is

The European Economic and Monetary Union

During the period from 1978-2012, the difference between annual inflation rates of EU countries and the German inflation rate

Which one of the following countries was the "spark" that ignited the 2009 euro crisis?

Which of the following statements is MOST accurate?

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

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

What is the "three-pronged approach" to organizing a banking union?

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

How did the European single currency evolve?

Which of the following best defines an optimum currency area?

What led to the over-extension of credit by some private banks and central banks in the euro zone prior to the 2009 euro crisis?

What are the biggest advantages the U.S. has over the EU in terms of being an Optimum Currency Area?

The theory of optimum currency areas predicts that

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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