Reference no: EM132313232

Questions -

Question 1 - The 'Convergence Criteria' for joining the monetary union included...

a. the country must have taken part in the ERM for at least two years without having had to devalue its currency, its public debt should not exceed 60 per cent of its GDP or be moving in that direction, and its government deficit should be less than 3 per cent.

b. the country must have taken part in the ERM for at least two years, its public debt should not exceed 60 per cent of its GDP or be moving in that direction, and its government deficit should be less than 3 per cent.

c. the country must have taken part in the ERM for at least two years without having had to devalue its currency, its public debt should not exceed 30 per cent of its GDP or be moving in that direction, and its government deficit should be less than 6 per cent.

d. the country must have taken part in the ERM for at least two years without having had to devalue its currency, its public debt should not be below 60 per cent of its GDP or be moving in that direction, and its government deficit should be less than 3 per cent.

Question 2 - What is the implication of the convergence criteria for economic growth?

a. Real GDP growth is 5% and Nominal GDP growth is 3%

b. Real GDP growth is 3% and Nominal GDP growth is around 3%

c. Real GDP growth is around 3% and Nominal GDP growth is 5%

d. Real GDP growth is around 5% and Nominal GDP growth is 5%

Question 3 - Within the Monetary union, there can only be a single short-term interest rate but long-term interest rates can differ from one country to another because:

a. The ECB chooses different long-term rates.

b. All other answers are wrong

c. The ECB controls the short-term rate and leave the long-term rates to the markets.

d. The long-term rate is controlled by national governments.

Question 4 - The Balassa-Samuelson principle predicts that:

a. Inflation will be higher in rich countries.

b. Inflation will always exceed the 2 per cent level chosen by the ECB.

c. Inflation rates must be the same throughout the euro area.

d. Inflation will be higher in poor countries.

Question 5 - In the euro area, inflation rates can differ from one country to another because:

i. Initial conversion rates

ii. Different fiscal policies

iii. Symmetric shocks

iv. Balassa-SAmuelson Effect

a. ii, iii, and iv

b. i, ii, and iv

c. All answers are correct

d. i, ii, and iii

Question 6 - Prior to the introduction of the euro, France and Germany had separate currencies; this acted as a barrier to trade in financial services since:

a. French and German banks colluded to divide the market between them.

b. the volatility of the exchange rate decreased uncertainty

c. the volatility of the exchange rate increased uncertainty

d. tariffs made it more expensive to lend across international borders.

Question 7 - How did the ECB act as a Lender of Last Resort during the economic crisis?

i. Increasing interest rates

ii. Providing liquidity to commercial banks

iii. Buying sovereign bonds

iv. Acknowledging the ECB cannot do whatever it takes to save the Euro

a. All answers are correct

b. i to iii

c. i and ii

d. ii and iii

Question 8 - What are the sources of incompleteness of the EMU as an Optimal Currency area?

i. Lack of labor mobility

ii. The solidarity effect: the significant amount of fiscal transfers among regions

iii. Asymmetric economic shocks

a. ii and iii

b. i, ii, and iii

c. i and ii

d. i and iii

Question 9 - What are the key factors that are linked to the ECB effectiveness?

a. Accountability and dependence on governments

b. Transparency and Independence

c. Conservativeness and transparency

d. Independence and conservativeness

Question 10 - Comparing the decisions of the US Fed and the ECB we can say that:

a. US Fed reacts more strongly to decline in output gaps than ECB

b. ECB reacts more strongly to decline in output gaps than US Fed

c. ECB does not react to movements in output gap

d. US Fed attaches greater importance to price stability

Question 11 - Implications of the introduction of the Euro on the European Banking sector has been:

a. Higher degree of concentration and a decrease in competition

b. Lower degree of concentration and an increase in competition

c. Lower degree of concentration and a decrease in competition

d. Increase of bank mergers across countries

Question 12 - The economic crisis showed that:

a. National banking supervisors did not share information with one another

b. National banking supervisors coordinated their actions during the crisis

c. The ECB could not act as a lender of last resort to

d. The ECB was well informed of stressed banks

Question 13 - Impossible trinity principle states that only two of the three following features are compatible with each other:

a. Fixed exchange rate, limited capital mobility and monetary policy autonomy

b. Fixed exchange rate, full capital mobility and monetary policy autonomy

c. Flexible exchange rate, limited capital mobility and monetary policy autonomy

d. Flexible exchange rate, full capital mobility and monetary policy autonomy

Question 14 - Up to early 1990s many European Union countries would:

a. Have a flexible exchange rate regime

b. None of the other answers are correct

c. Restrict capital mobility

d. Give up on monetary policy autonomy

Question 15 - The European ERM led to:

a. A perfect alignment of inflation rates

b. The system became perfectly symmetric

c. None of the other answers are correct

d. A higher appreciation of the Bundesbank

Question 16 - The European Monetary System suffered a system of speculative attacks in early 1990s triggered by:

a. Overvaluation of national currencies

b. Inflation differentials across countries

c. All answers are correct

d. Contractionary policy in Germany

Question 17 - If, for the period 1960-1998, the average annual inflation in Germany is close to 2% and the average annual inflation in Italy is close to 8%, we should expect...

a. A depreciation of the German currency

b. An appreciation of the Italian currency

c. A devaluation of the Italian currency

d. A devaluation of the German currency

Question 18 - After the collapse of Bretton Woods, Europe established the "European Snake". One of the innovations of the system was:

a. A convergence of monetary policies of European countries

b. European currencies were defined against each other

c. Inflation differentials between European countries disappeared

d. None of the other answers are correct

Question 19 - The benefits of a currency area include:

a. Elimination of exchange rate risk

b. All answers are correct

c. Intensified trade

d. Elimination of transaction costs due to different exchange rates

Question 20 - Imagine France faces an adverse demand shock, but Germany doe snot face it. What is more likely to happen?

a. Fall in French output is smaller than it would have been outside the EMU

b. The French real exchange rate depreciates

c. French workers will move to Germany

d. Fall in German output is smaller than it would have been outside the EMU