Question 1

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 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

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 4

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 5

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 6

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

Question 7

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 8

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 9

Describe the policy of "outright monetary transactions" or 0MT presented by the president of the European Central Bank in 2012.

Accepted Answer

The ECB is now committed to pu

Question 10

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 11

Using the GG-LL framework, analyze the effect of Libya subsidizing the Pakistani Nuclear programs.

Accepted Answer

This will shift the GG curve u

Question 12

Is the EU an optimum currency area?
 Why or why not?

Accepted Answer

Europe is not an optimum currency area.

Question 13

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 14

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

Accepted Answer

Centralize financial supervisi

Question 15

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 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

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 18

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 19

Which one of the following statements is TRUE for Norway, a non-euro country?

Accepted Answer

A)  Of course, owners of capital that cannot be moved cannot avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows. 
B)  Even owners of capital that cannot be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows. 
C)  Owners of capital that cannot be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is closed to capital flows. 
D)  Even owners of capital that can be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is closed to capital flows. 
E)  Only owners of capital that can be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows. 
A)  Of course, owners of capital that cannot be moved cannot avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows. 
B)  Even owners of capital that cannot be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows. 
C)  Owners of capital that cannot be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is closed to capital flows. 
D)  Even owners of capital that can be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is closed to capital flows. 
E)  Only owners of capital that can be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows.

Question 20

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.

Exam 21: Optimum Currency Areas and the Euro

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

Why does the GG schedule have a positive slope?

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

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

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

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?

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

When the exchange rate is

Describe the policy of "outright monetary transactions" or 0MT presented by the president of the European Central Bank in 2012.

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

Using the GG-LL framework, analyze the effect of Libya subsidizing the Pakistani Nuclear programs.

Is the EU an optimum currency area? Why or why not?

The EMU created a currency area with more than

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

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

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?

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

Which one of the following statements is TRUE for Norway, a non-euro country?

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

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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