Question 1

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 2

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 3

How and why did Europe set up its single currency?

Accepted Answer

The why part is because large fluctuatio

Question 4

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 5

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.

Question 6

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 7

During the 2009 euro crisis, a number of countries had private banks that had become too "big to save." Explain.

Accepted Answer

A PRIVATE BANK IS TOO BIG TO SAVE IF THE

Question 8

What event in 2009 ignited the euro crisis?

Accepted Answer

Greece elected a new government in 2009

Question 9

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 10

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 11

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 12

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 13

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 14

"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 15

How mobile is Europe's labor force?

Accepted Answer

Differences in language and culture disc

Question 16

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 17

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 18

Is Europe an optimum currency area?

Accepted Answer

An open question. I think yes, the area'

Question 19

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 20

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

Exam 21: Optimum Currency Areas and the Euro

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

A country that joins an exchange rate area

How and why did Europe set up its single currency?

To join the EMU, a country must have

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

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.

During the 2009 euro crisis, a number of countries had private banks that had become too "big to save." Explain.

What event in 2009 ignited the euro crisis?

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

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

Which of the following statements is MOST accurate?

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

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

"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.

How mobile is Europe's labor force?

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

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?

Which of the following statements is the MOST accurate?

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?

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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