Question 1

When the economy is disturbed by a change in the output market

Accepted Answer

A)  a fixed exchange rate has an advantage over a flexible rate. 
B)  a floating exchange rate has an advantage over a fixed rate. 
C)  a crawling peg exchange rate has an advantage over a flexible rate. 
D)  a floating exchange rate has the same effect as fixed rate. 
E)  a flexible exchange rate is not as effective as a fixed exchange rate. 
A)  a fixed exchange rate has an advantage over a flexible rate. 
B)  a floating exchange rate has an advantage over a fixed rate. 
C)  a crawling peg exchange rate has an advantage over a flexible rate. 
D)  a floating exchange rate has the same effect as fixed rate. 
E)  a flexible exchange rate is not as effective as a fixed exchange rate.

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

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 4

A krone/euro peg alone is

Accepted Answer

A)  not enough to provide automatic stability in the face of any monetary shocks that shift the AA schedule. 
B)  enough to provide automatic stability in the face of any monetary shocks that shift the AA schedule. 
C)  not enough to provide automatic stability in the face of any monetary shocks that shift the AA schedule, provided fiscal policy will be used as well. 
D)  enough to provide automatic stability in the face of any monetary shocks that shift the AA schedule, provided the government runs a budget deficit. 
E)  enough to provide partial stability in the face of smaller monetary shocks that shift the AA schedule. 
A)  not enough to provide automatic stability in the face of any monetary shocks that shift the AA schedule. 
B)  enough to provide automatic stability in the face of any monetary shocks that shift the AA schedule. 
C)  not enough to provide automatic stability in the face of any monetary shocks that shift the AA schedule, provided fiscal policy will be used as well. 
D)  enough to provide automatic stability in the face of any monetary shocks that shift the AA schedule, provided the government runs a budget deficit. 
E)  enough to provide partial stability in the face of smaller monetary shocks that shift the AA schedule.

Question 5

To join the EMU, a country must have a public debt below or approaching a reference level of

Accepted Answer

A)  50 percent of its GDP. 
B)  10 percent of its GDP. 
C)  60 percent of its GDP. 
D)  100 percent of its GDP. 
E)  5 percent of its GDP. 
A)  50 percent of its GDP. 
B)  10 percent of its GDP. 
C)  60 percent of its GDP. 
D)  100 percent of its GDP. 
E)  5 percent of its GDP.

Question 6

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.

Question 7

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 8

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 period of boom with hig

Question 9

How and why did Europe set up its single currency?

Accepted Answer

The why part is because large fluctuatio

Question 10

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 11

Explain why the oil price shocks after 1973 made countries unwilling to revive the Bretton Woods system of fixed exchange rates. See also Chapter 19.

Accepted Answer

Using the GG-LL framework will help solv

Question 12

What is the purpose of the following figure?

Accepted Answer

The purpose of the figure is to show the

Question 13

Which of the following statements is TRUE?

Accepted Answer

A)  The 1957 Treaty of Rome founded the EU and created a custom union. 
B)  The 1957 Treaty of Rome founded the EU. 
C)  The 1957 Treaty of Rome founded the euro. 
D)  The 1957 Treaty of Rome founded the European Central Bank. 
E)  The 1957 Treaty of Rome founded the Stability and Growth Pact. known as SGP. 
A)  The 1957 Treaty of Rome founded the EU and created a custom union. 
B)  The 1957 Treaty of Rome founded the EU. 
C)  The 1957 Treaty of Rome founded the euro. 
D)  The 1957 Treaty of Rome founded the European Central Bank. 
E)  The 1957 Treaty of Rome founded the Stability and Growth Pact. known as SGP.

Question 14

Describe the main provisions of the Maastricht Treaty of 1991.

Accepted Answer

Called for a single currency b

Question 15

When did the UK decide to adopt the Euro?

Accepted Answer

A)  1999 
B)  2001 
C)  2008 
D)  The UK has not adopted the Euro. 
E)  2010 
A)  1999 
B)  2001 
C)  2008 
D)  The UK has not adopted the Euro. 
E)  2010

Question 16

Explain why after, say Norway unilaterally pegs the krone to the euro, domestic money market disturbances will no longer affect domestic output despite the continuation of float-rate regime against non-euro currencies.

Accepted Answer

Because Norway's interest rate must equa

Question 17

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 18

Discuss the trends and implications of the following graph, especially with respect to the official start of the EMU on January 1, 1999.

Accepted Answer

The extent of intra-EU country trade has

Question 19

What behavior by central and private banks in euro zone countries created the conditions for the 2009 euro crisis?

Accepted Answer

Assets were accumulated by the banks thr

Question 20

What is the "doom loop" responsible for the rapid development and severity of the 2009 euro crisis?

Accepted Answer

The "doom loop" refers to the feedback l

Exam 21: Optimum Currency Areas and the Euro

When the economy is disturbed by a change in the output market

Why does the GG schedule have a positive slope?

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

A krone/euro peg alone is

To join the EMU, a country must have a public debt below or approaching a reference level of

The theory of optimum currency areas predicts that

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

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.

How and why did Europe set up its single currency?

Which of the following statements is MOST accurate?

Explain why the oil price shocks after 1973 made countries unwilling to revive the Bretton Woods system of fixed exchange rates. See also Chapter 19.

What is the purpose of the following figure?

Which of the following statements is TRUE?

Describe the main provisions of the Maastricht Treaty of 1991.

When did the UK decide to adopt the Euro?

Explain why after, say Norway unilaterally pegs the krone to the euro, domestic money market disturbances will no longer affect domestic output despite the continuation of float-rate regime against non-euro currencies.

The EMU created a currency area with more than

Discuss the trends and implications of the following graph, especially with respect to the official start of the EMU on January 1, 1999.

What behavior by central and private banks in euro zone countries created the conditions for the 2009 euro crisis?

What is the "doom loop" responsible for the rapid development and severity of the 2009 euro crisis?

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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