Question 1

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 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 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 4

Describe the single supervisory mechanism or SSM proposed by EU leaders in June of 2012.

Accepted Answer

The SSM involved granting the

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

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 7

Which of the following is TRUE?

Accepted Answer

A)  All European countries are part of the EMU. 
B)  All Western European countries are part of the EMU. 
C)  Originally, 20 countries joined the EMU on January 1999. 
D)  No Western European countries are part of the EMU. 
E)  Not all Western European countries are part of the EMU. 
A)  All European countries are part of the EMU. 
B)  All Western European countries are part of the EMU. 
C)  Originally, 20 countries joined the EMU on January 1999. 
D)  No Western European countries are part of the EMU. 
E)  Not all Western European countries are part of the EMU.

Question 8

Discuss the benefits and costs of joining a fixed-exchange area.

Accepted Answer

Benefits: In general, gains from the sta

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

An inflation-prone country

Accepted Answer

A)  gains from vesting its monetary policy decisions with a "conservative" central bank. 
B)  loses from vesting its monetary policy decisions with a "conservative" central bank. 
C)  gains from vesting its fiscal policy decisions with a "conservative" central bank. 
D)  loses from vesting its fiscal policy decisions with a "conservative" central bank. 
E)  remains constant when vesting its fiscal policy decisions with a "conservative" central bank. 
A)  gains from vesting its monetary policy decisions with a "conservative" central bank. 
B)  loses from vesting its monetary policy decisions with a "conservative" central bank. 
C)  gains from vesting its fiscal policy decisions with a "conservative" central bank. 
D)  loses from vesting its fiscal policy decisions with a "conservative" central bank. 
E)  remains constant when vesting its fiscal policy decisions with a "conservative" central bank.

Question 11

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 12

Since Norway has close trading links with the euro zone

Accepted Answer

A)  a small reduction in its price will lead to an increase in euro zone demand for Norwegian goods that is large relative to Norway's output. Thus, full employment can be restored fairly quickly. 
B)  a small reduction in its price will lead to a decrease in euro zone demand for Norwegian goods that is large relative to Norway's output. Thus, full employment can be restored fairly quickly. 
C)  a small reduction in its price will lead to an increase in euro zone demand for Norwegian goods that is small relative to Norway's output. Thus, full employment can be restored fairly quickly. 
D)  a big reduction in its price will lead to an increase in euro zone demand for Norwegian goods that is large relative to Norway's output. Thus, full employment can be restored fairly quickly. 
E)  a big reduction in its price will lead to a decrease in euro zone demand for Norwegian goods that is small relative to Norway's output. Thus, full employment can be restored fairly quickly. 
A)  a small reduction in its price will lead to an increase in euro zone demand for Norwegian goods that is large relative to Norway's output. Thus, full employment can be restored fairly quickly. 
B)  a small reduction in its price will lead to a decrease in euro zone demand for Norwegian goods that is large relative to Norway's output. Thus, full employment can be restored fairly quickly. 
C)  a small reduction in its price will lead to an increase in euro zone demand for Norwegian goods that is small relative to Norway's output. Thus, full employment can be restored fairly quickly. 
D)  a big reduction in its price will lead to an increase in euro zone demand for Norwegian goods that is large relative to Norway's output. Thus, full employment can be restored fairly quickly. 
E)  a big reduction in its price will lead to a decrease in euro zone demand for Norwegian goods that is small relative to Norway's output. Thus, full employment can be restored fairly quickly.

Question 13

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 14

The ability of factors to migrate abroad

Accepted Answer

A)  reduces the severity of unemployment and the fall in the rate of return available to investors. 
B)  increases the severity of unemployment and the fall in the rate of return available to investors. 
C)  reduces the severity of unemployment but increases the fall in the rate of return available to investors. 
D)  cannot change the severity of unemployment and the constant rate of return available to investors. 
E)  reduces the migration of highly-skilled workers. 
A)  reduces the severity of unemployment and the fall in the rate of return available to investors. 
B)  increases the severity of unemployment and the fall in the rate of return available to investors. 
C)  reduces the severity of unemployment but increases the fall in the rate of return available to investors. 
D)  cannot change the severity of unemployment and the constant rate of return available to investors. 
E)  reduces the migration of highly-skilled workers.

Question 15

Explain the credibility theory of the EMS.

Accepted Answer

In this way, the other EMS countries in

Question 16

What is fiscal federalism?

Accepted Answer

Fiscal federalism in the euro

Question 17

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 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

Using the GG-LL framework, analyze the effect of an increase in the size and frequency of sudden shifts in the demand for a country's exports.

Accepted Answer

Such a change pushes LL upward and to th

Question 20

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)  make the Euro a weak currency. 
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)  make the Euro a weak currency. 
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.

Exam 21: Optimum Currency Areas and the Euro

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

Which one of the following statements is TRUE?

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

Describe the single supervisory mechanism or SSM proposed by EU leaders in June of 2012.

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

Which of the following best defines an optimum currency area?

Which of the following is TRUE?

Discuss the benefits and costs of joining a fixed-exchange area.

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

An inflation-prone country

Under the EMS, Germany set the system's

Since Norway has close trading links with the euro zone

The efficiency

The ability of factors to migrate abroad

Explain the credibility theory of the EMS.

What is fiscal federalism?

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

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

Using the GG-LL framework, analyze the effect of an increase in the size and frequency of sudden shifts in the demand for a country's exports.

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

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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