Question 1

In order to attain the goal of a monetary union,the president of the European Commission recommended a stage based transition.Which stage of this transition involved the completion of the monetary union with the establishment of a single currency and a European Central Bank.

Accepted Answer

A) Stage one 
B) Stage two 
C) Stage three 
D) Stage four

Question 2

At the beginning of 1999,the European Monetary System became the _________________ with the introduction of the euro and the adoption of a common monetary policy by the European Central Bank.

Accepted Answer

A) European Monetary Institute 
B) European Monetary Union 
C) European Currency Unit 
D) European Monetary Cooperation Fund

Question 3

What country was admitted to the EMU on January 1,2001?

Accepted Answer

A) Greece 
B) Spain 
C) Ireland 
D) France

Question 4

Under a flexible exchange rate system_____________ would be changed in order to correct a disequilibrium in the nation's balance of payments.

Accepted Answer

A) monetary policies 
B) fiscal policies 
C) only the exchange rate 
D) monetary and fiscal policies

Question 5

The institution of the European Monetary System that provides short-term and medium-term balance-of-payments assistance to member nations is known as:

Accepted Answer

A) the European Currency Unit 
B) the European Monetary Cooperation Fund 
C) the European Assistance Fund 
D) the European Monetary Institute

Question 6

Under a ____________,a nation is free to utilize all polices at its disposal to achieve its goal of full employment with price stability without having to worry about external balance.

Accepted Answer

A) flexible exchange rate system 
B) fixed exchange rate system 
C) managed peg 
D) gold standard

Question 7

Under the ________________,the creation of the European Monetary Institute was created as a forerunner of the European Central Bank and monetary union.

Accepted Answer

A) Maastricht Treaty 
B) European Monetary Union 
C) European Currency Unit 
D) European Monetary System

Question 8

Which of the following is one of the conditions that was set under the Maastricht Treaty and must be met before a nation could join the European Monetary Union?

Accepted Answer

A) an inflation rate not exceeding 10 percent of the three member nations with highest inflation rate 
B) a budget surplus not exceeding 3 percent of GDP 
C) overall government debt not exceeding 60 percent of GDP 
D) the average exchange rate not increasing by more than 5% of the EMS for the 5 years before joining the union

Question 9

In 1998,the _______________ was established as a federal structure of the national central banks of the European Union.

Accepted Answer

A) European Monetary System 
B) European Currency United 
C) European Central Bank 
D) European Monetary Institute

Question 10

The second stage of the monetary union,approved at a meeting in Maastricht in December 1991,called for the creation of the________________.

Accepted Answer

A) European Currency Unit 
B) European Monetary Cooperation Fund 
C) Supranational Monetary Agency 
D) European Monetary Institute

Question 11

A fixed exchange rate system is alleged to:

Accepted Answer

A) be efficient 
B) adjust rates smoothly and does not require the use of policies 
C) lead to policy mistakes 
D) destabilize speculation

Question 12

Advocates of fixed exchange rates claim that flexible exchange rates:

Accepted Answer

A) increase the volume of international trade and investment 
B) lead to stabilizing speculation 
C) are inflationary 
D) makes internal balance of the economy more difficult to attain

Question 13

An optimum currency area has all of the following except:

Accepted Answer

A) zero cost of official interventions in foreign exchange markets 
B) No cost of hedging 
C) zero cost of exchanging one currency for another to pay for imports of goods and tourist services 
D) a common currency for all countries

Question 14

The case against fixed exchange rates is:

Accepted Answer

A) the alleged smaller degree of uncertainty introduced into international trade and finance 
B) being more likely to lead to stabilizing speculation 
C) the greater price discipline than under flexible rates 
D) requires the use of policies to figure out how to deal with pressures on the foreign exchange rate

Question 15

Optimum currency areas provide each member with the ability to pursue its own independent stabilization.

Accepted Answer

A) True 
 B)False

Question 16

The organization formed by the members of the European Union in 1979 based on the creation of the European currency unit of account,limited exchange rate flexibility among members,and formation of the European Monetary Fund is known as the:

Accepted Answer

A) European Currency Unit 
B) European Monetary Cooperation Fund 
C) European Monetary System 
D) European Monetary Institute

Question 17

A monetary union in Europe would mean that member nations would relinquish their sovereign power over their money supply and monetary policy.

Accepted Answer

A) True 
 B)False

Question 18

The system under which the exchange rate is always determined by the forces of demand and supply without any government intervention in foreign exchange markets is a(n):

Accepted Answer

A) fixed exchange rate system 
B) import system 
C) freely floating exchange rate system 
D) export system

Question 19

The modification of national economic policies in recognition of international interdependence is known as:

Accepted Answer

A) international macroeconomic policy coordination 
B) international microeconomic policy coordination 
C) monetary policy 
D) fiscal policy

Question 20

The exchange rate arrangement whereby the nation fixes the exchange rate and allows the nation's money supply to increase or decrease only in response to balance-of-payments surpluses or deficit is known as (a):

Accepted Answer

A) Currency board arrangements 
B) Dollarization 
C) Crawling peg system 
D) Managed floating exchange rate system

Exam 15: Flexible Versus Fixed Exchange Rates,european Monetary Systems,and Macroeconomic Policy Coordination