Question 1

The fiscal compact has a key feature to control

Accepted Answer

The fiscal compact aims to control the structural deficit of member countries, which refers to the deficit that persists even in times of economic growth and low unemployment. This is considered a more significant issue than cyclical deficits, which are caused by economic downturns and can be more easily addressed through government stimulus measures. The fiscal compact does not directly control interest rates or the amount a country can increase taxes.

Question 2

Why may keeping to the fiscal pact be difficult for a country running up a large government debt?

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Question 3

What is fiscal federalism?

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Question 4

The fiscal compact, to deal with problems arising from the debt crises, came in being in

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Question 5

List the criteria that an optimal currency area (OCA) must satisfy.

Accepted Answer

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Question 6

A structural deficit is one where

Accepted Answer

A structural deficit occurs when a government's spending exceeds its revenue, regardless of movements in the economic cycle. It is not related to imports or exports. In contrast, a cyclical deficit is caused by the ups and downs of the economy. Therefore, option C is the correct answer.

Question 7

Explain how the Greek debt crises threatened to cause a split in the eurozone.

Accepted Answer

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Question 8

Why was it important that the Stability and Growth Pact should allow eurozone member countries to run modest budget deficits?

Accepted Answer

With no access to independent monetary policy, eurozone member countries must rely on their fiscal policy to respond to economic shocks. Allowing modest budget deficits provides the flexibility necessary for countries to utilize automatic fiscal stabilizers without violating the Stability and Growth Pact.

Question 9

There is some evidence from the experience of the EMU that a country's degree of trade integration with its EMU partners _________ as a result of joining EMU and so can be said to be _________.

Accepted Answer

Research has shown that a country's degree of trade integration with its EMU partners increases as a result of joining EMU, which suggests that this integration is endogenous (i.e. influenced by internal factors such as policy decisions and economic incentives within the EMU).

Question 10

Why might a 'one size fits all' monetary policy cause difficulties for a member country?

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Question 11

What is the difference between symmetric and asymmetric shocks?

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Question 12

Why do the 10-year bond interest rates vary between member countries in the EU?

Accepted Answer

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Question 13

To what extent is the eurozone an optimal currency area (OCA)?

Accepted Answer

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Question 14

Why is it important that the economies of countries entering a currency union be at a similar stage in the economic cycle?

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Question 15

Explain the difference between cyclical and structural deficit.

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Quiz 37: Common Currency Areas and European Monetary Union