tbch20 - Chapter 20: Optimum Currency Areas and the...

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Chapter 20: Optimum Currency Areas and the European Experience Multiple Choice Questions 1. What are the biggest advantages the U.S. has above the EU in terms of being an Optimum Currency Area? A. Low mobility of labor, higher labor productivity, lower level of intra-regional trade B. High unionization of U.S. Labor force C. I don’t know. D. High mobility of labor force, more transfer payments between regions E. Higher uniformity of population’s taste in consumption Answer: D 2. The European Monetary System A. caused several countries to go into recession by causing interest rates to rise. B. pegged different European currencies to each other, allowing for bands of variance. C. was a product of the Werner Report. D. fell apart in 1987. E. None of the above. Answer: A 3. The credibility theory of the EMS states that countries avoid A. short-term interest rate changes to avoid long-term inflation. B. depreciating their currencies to avoid political instability. C. short-term gains from depreciation to avoid long-term costs from inflation. D. short-terms economic booms. Answer: C 4. The European Economic and Monetary Union A. set up a single currency and sole bank for European economic monetary policy. B. eliminated all barriers to trade such as tax differentials between borders. C. produced a single government for handling European affairs. D. created the Common Agricultural Pact . E. None of the above. Answer: A 68
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The birth of the Euro A. resulted in fixed exchange rates between all EMU member countries. B. resulted in flexible exchange rates between all EMU member countries. C. resulted in crawling-peg exchange rates between all EMU member countries. D. resulted in non-currency board exchange rates between all EMU member countries. E. None of the above. Answer: A 6. Which of the following is true? A. All European countries are part of the EMU. B. All Western European countries are part of the EMU. C. Originally, 11 countries joined the EMUin January 1999. D. Not all Western European countries are part of the EMU. E. None of the above. Answer: C 7. The EMU created a currency area with more than A. 200 million consumers. B. 250 million consumers. C. about a billion customers. D. 500 million consumers. E. 300 million consumers. Answer: E 8. The EU countries were prompted to seek closer coordination of monetary policies and greater exchange rate stability in the late 1960s in order 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. None of the above. E. both to turn the European Union into a truly unified market and to counter the rise of Japan in international financial markets. Answer: C
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This note was uploaded on 05/30/2011 for the course ECONOMICS 120 taught by Professor Dr.mohamed during the Spring '11 term at Faculty of English Commerce Ain Shams University.

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tbch20 - Chapter 20: Optimum Currency Areas and the...

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