Question 1

What event in 2009 ignited the euro crisis?

Accepted Answer

Greece elected a new government in 2009 which found that the previous government had been misreporting economic statistics for years and the public debt amounted to more than 100% of GDP.It became apparent that Greece would experience a sovereign default unless bailed out by the European Central Bank or some other source of credit.

Question 2

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. A

Question 3

Why does the LL schedule have a negative slope?

Accepted Answer

A) The economic stability loss from pegging to the area's currencies rises as the degree of economic interdependence rises. 
B) The economic stability loss from pegging to the area's currencies falls as the degree of economic interdependence rises. 
C) The economic stability loss from pegging to the area's currencies falls as the degree of economic interdependence falls. 
D) The economic stability loss from pegging to the area's currencies rises as the degree of economic activity increases. 
E) The economic stability loss from pegging to the area's currencies is constant,even as the degree of economic activity increases. 
A) The economic stability loss from pegging to the area's currencies rises as the degree of economic interdependence rises. 
B) The economic stability loss from pegging to the area's currencies falls as the degree of economic interdependence rises. 
C) The economic stability loss from pegging to the area's currencies falls as the degree of economic interdependence falls. 
D) The economic stability loss from pegging to the area's currencies rises as the degree of economic activity increases. 
E) The economic stability loss from pegging to the area's currencies is constant,even as the degree of economic activity increases. B

Question 4

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 per

Question 5

What is fiscal federalism?

Accepted Answer

Fiscal federalism in the euro

Question 6

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 7

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 8

Did the 1957 Treaty of Rome turn the EU into a truly unified market?

Accepted Answer

A) Yes,it paved the way for the current EMU. 
B) No,although it established a customs union,it failed to remove barriers to the movement of goods and factors within Europe. 
C) No,it was only after the German unification and locating the ECB in Frankfurt that unity was achieved. 
D) No,since the Northern members of the EU had larger endowments of capital and skilled labor. 
E) No,the Treaty of Rome created more trade barriers between European countries. 
A) Yes,it paved the way for the current EMU. 
B) No,although it established a customs union,it failed to remove barriers to the movement of goods and factors within Europe. 
C) No,it was only after the German unification and locating the ECB in Frankfurt that unity was achieved. 
D) No,since the Northern members of the EU had larger endowments of capital and skilled labor. 
E) No,the Treaty of Rome created more trade barriers between European countries.

Question 9

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 10

Explain why when Norway unilaterally fixes its exchange rate against the euro but leaves the krone free to float against the non-euro currencies,it is unable to keep at least some monetary independence.

Accepted Answer

Any independent money supply change in N

Question 11

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 12

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 13

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 14

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 15

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 16

Which one of the following unexpected events ignited the 2009 euro crisis?

Accepted Answer

A) accelerating hyperinflation and political upheaval 
B) the prospect of a sovereign default by one or more euro zone countries 
C) rising oil prices 
D) revolutions in Switzerland and Belgium 
E) a Chinese boycott of European products 
A) accelerating hyperinflation and political upheaval 
B) the prospect of a sovereign default by one or more euro zone countries 
C) rising oil prices 
D) revolutions in Switzerland and Belgium 
E) a Chinese boycott of European products

Question 17

Compared with inter-regional trade in the he United States,intra-EU trade

Accepted Answer

A) is far greater. 
B) is greater. 
C) is about the same. 
D) is less. 
E) is far less. 
A) is far greater. 
B) is greater. 
C) is about the same. 
D) is less. 
E) is far less.

Question 18

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 19

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. 
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.

Question 20

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.

Exam 21: Optimum Currency Areas and the Euro

What event in 2009 ignited the euro crisis?

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

Why does the LL schedule have a negative slope?

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.

What is fiscal federalism?

Under the EMS,Germany set the system's

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

Did the 1957 Treaty of Rome turn the EU into a truly unified market?

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

Explain why when Norway unilaterally fixes its exchange rate against the euro but leaves the krone free to float against the non-euro currencies,it is unable to keep at least some monetary independence.

The intersection of GG and LL determines

The European Economic and Monetary Union

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

When the exchange rate is

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

Which one of the following unexpected events ignited the 2009 euro crisis?

Compared with inter-regional trade in the he United States,intra-EU trade

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

The credibility theory of EMS had as an effect

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

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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