Question 1

Asymmetric shocks are likely to be greater in a single currency area the greater is the divergence in industrial structures between different countries or regions.

Accepted Answer

A) True 
 B)False

Question 2

What were the five criteria for joining the euro in 1999? How many countries qualified? Who did not qualify, and why?

Accepted Answer

The five criteria were:
1) budget defici...

Question 3

In the UK, which of the following is not a Eurosceptic argument against the UK joining the euro?

Accepted Answer

A)   Makes adjustment to domestic problems more difficult
B)   Makes dealing with asymmetric shocks more difficult
C)   Puts too much emphasis on fiscal policy
D)   Loss of national independenceE) A) and D)
F) B) and D)

Question 4

Which of the following is not usually given as a reason for having a single EC currency?

Accepted Answer

A)   Increased freedom to pursue national monetary policy
B)   Increased competition and efficiency
C)   Elimination of the cost of currency conversion
D)   Increased inward investmentE) C) and D)
F) A) and B)

Question 5

The term 'beggar- my- neighbour policies' is usually applied to

Accepted Answer

A)   Euro- scepticism.
B)   controls and restrictions on trade.
C)   countries trying to solve their problems without considering the international effects.
D)   the IMF imposing harsh conditions when granting loans to poor countries.E) A) and B)
F) B) and C)

Question 6

Which of the following is not a characteristic of an 'optimal currency area'?

Accepted Answer

A)   Different countries or areas need different interest rates.
B)   Labour is mobile between countries or areas.
C)   Wage rates are flexible.
D)   Countries or areas are similar in industrial structure.E) A) and B)
F) A) and C)

Question 7

Which of the following is not a reason for the vulnerability of the European Exchange Rate Mechanism (ERM)  to speculation in the period from 1990 to 1993?

Accepted Answer

A)   The French franc appeared to be overvalued after 1990.
B)   Cuts in US interest rates were causing capital to flow to Germany.
C)   The Maastricht Treaty was signed in February 1992.
D)   The Germans kept their interest rates high after re- unification.E) A) and B)
F) B) and D)

Question 8

What are asymmetric shocks, and why are they important when considering monetary union?

Accepted Answer

A shock that affects different countries...

Question 9

The effect of changes in imports or exports of one country on the national income of another country is called the international trade multiplier.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is not a reason for the vulnerability of the European Exchange Rate Mechanism (ERM)  to speculation in the period from 1990 to 1993?

Accepted Answer

A)   The proposal to set up the European System of Central Banks (ESC
B)   and the European Central Bank (EC
B)  
B)   Fears that the Danish and French voters might reject the Maastricht Treaty
C)   The UK entering the ERM in 1990 with an overvalued £ and a large budget deficit
D)   The removal, in 1991, of restrictions on the movement of capital within the ECE) A) and B)
F) A) and C)

Question 11

Exchange rates will be less variable if countries manage to converge their economies.

Accepted Answer

A) True 
 B)False

Question 12

What are the most often quoted advantages and disadvantages of a single EC currency?

Accepted Answer

The most often quoted advantages of a si...

Question 13

An adjustable peg exchange rate regime is where

Accepted Answer

A)   exchange rates and interest rates are fixed for a period of time but interest rates may be devalued/revalued if a deficit/surplus becomes substantial.
B)   exchange rates are fixed for a period of time but may be devalued/revalued if a deficit/surplus becomes substantial.
C)   interest rates are fixed for a period of time but may be devalued/revalued if a deficit/surplus becomes substantial.
D)   exchange rates are fixed at a level that equates relative prices and are moved as prices change.E) B) and C)
F) A) and B)

Question 14

What were the main features of the ERM?

Accepted Answer

Under the system, each currency was give...

Question 15

Assume that the US economy expands and that the US Federal Reserve Bank, worried by rising inflation, decides to raise interest rates. Which of the following would not occur?

Accepted Answer

A)   The current account of the US's trading partners will improve.
B)   Interest rates in other countries will fall.
C)   The US dollar will appreciate.
D)   There will be a fall in US exports.E) C) and D)
F) A) and B)

Question 16

If the European Central Bank cuts interest rates and the Bank of England does not, it is likely that the value of the £ will  ___and the UK trade deficit will ___.

Accepted Answer

A)   rise; increase
B)   rise; decrease
C)   fall; increase
D)   fall; decreaseE) A) and D)
F) A) and C)

Question 17

What are the problems of the system of exchange rate target zones?

Accepted Answer

They remove the pressure on high- inflat...

Question 18

The EC arrangement which aimed to create currency stability, monetary co- operation and the convergence of economic policies, starting in 1979, was called

Accepted Answer

A)   ERM.
B)   ECU.
C)   EMS.
D)   EMU.E) A) and D)
F) A) and B)

Question 19

Exchange controls (i.e. controls over international financial transactions)  have been used successfully by

Accepted Answer

A)   Taiwan in 1997.
B)   Malaysia in 1998.
C)   France in 1993.
D)   the UK in 1992.E) A) and B)
F) All of the above

Question 20

Asymmetric shocks in the context of a currency union are when

Accepted Answer

A)   all countries have the same problems.
B)   government departments have different goals.
C)   shocks have different effects in different areas, countries, etc.
D)   internal shocks are different from external shocks.E) A) and B)
F) A) and C)

Exam 32: International Economic Policy

The term 'beggar- my- neighbour policies' is usually applied to

Correct AnswerverifiedShow Answer

Asymmetric shocks are likely to be greater in a single currency area the greater is the divergence in industrial structures between different countries or regions.

Correct AnswerverifiedShow Answer

Which of the following is not a reason for the vulnerability of the European Exchange Rate Mechanism (ERM) to speculation in the period from 1990 to 1993?

Correct AnswerverifiedShow Answer

Which of the following is not usually given as a reason for having a single EC currency?

Correct AnswerverifiedShow Answer

The EC arrangement which aimed to create currency stability, monetary co- operation and the convergence of economic policies, starting in 1979, was called

Correct AnswerverifiedShow Answer

Exchange controls (i.e. controls over international financial transactions) have been used successfully by

Correct AnswerverifiedShow Answer

Exchange rates will be less variable if countries manage to converge their economies.

Correct AnswerverifiedShow Answer

In the UK, which of the following is not a Eurosceptic argument against the UK joining the euro?

Correct AnswerverifiedShow Answer

The effect of changes in imports or exports of one country on the national income of another country is called the international trade multiplier.

Correct AnswerverifiedShow Answer

What are the problems of the system of exchange rate target zones?

Correct AnswerverifiedThey remove the pressure on high- inflat...View AnswerShow Answer

If the European Central Bank cuts interest rates and the Bank of England does not, it is likely that the value of the £ will ___and the UK trade deficit will ___.

Correct AnswerverifiedShow Answer

What were the main features of the ERM?

Correct AnswerverifiedUnder the system, each currency was give...View AnswerShow Answer

What are asymmetric shocks, and why are they important when considering monetary union?

Correct AnswerverifiedA shock that affects different countries...View AnswerShow Answer

Asymmetric shocks in the context of a currency union are when

Correct AnswerverifiedShow Answer

What were the five criteria for joining the euro in 1999? How many countries qualified? Who did not qualify, and why?

Correct AnswerverifiedThe five criteria were:1) budget defici...View AnswerShow Answer

Assume that the US economy expands and that the US Federal Reserve Bank, worried by rising inflation, decides to raise interest rates. Which of the following would not occur?

Correct AnswerverifiedShow Answer

What are the most often quoted advantages and disadvantages of a single EC currency?

Correct AnswerverifiedThe most often quoted advantages of a si...View AnswerShow Answer

Which of the following is not a characteristic of an 'optimal currency area'?

Correct AnswerverifiedShow Answer

An adjustable peg exchange rate regime is where

Correct AnswerverifiedShow Answer

Which of the following is not a reason for the vulnerability of the European Exchange Rate Mechanism (ERM) to speculation in the period from 1990 to 1993?

Correct AnswerverifiedShow Answer

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They remove the pressure on high- inflat...
View Answer

If the European Central Bank cuts interest rates and the Bank of England does not, it is likely that the value of the £ will _and the UK trade deficit will _.

Correct Answer
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Correct Answer
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Under the system, each currency was give...
View Answer

Correct Answer
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A shock that affects different countries...
View Answer

Correct Answer
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Correct Answer
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The five criteria were:
1) budget defici...
View Answer

Correct Answer
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Correct Answer
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The most often quoted advantages of a si...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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