Question 1

What prompted the EU countries to seek closer coordination of monetary policies and greater exchange rate stability in the late 1960s?

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Question 2

The European Central Bank has its headquarter in:

Accepted Answer

The European Central Bank's headquarters is located in Frankfurt, Germany.

Question 3

Explain why the EMS countries decided to fix their exchange rates against the German DM?

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Question 4

Explain what was the credibility theory of the EMS.

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Question 5

What are the biggest advantages the U.S. has above the EU in terms of being an Optimum Currency Area?

Accepted Answer

The high mobility of labor force and more transfer payments between regions are major advantages the U.S. has over the EU in terms of being an Optimum Currency Area. The EU has limitations on labor mobility due to language barriers and cultural differences, which makes the U.S. a more flexible currency area. Additionally, the U.S. has a system of transfer payments between states, which helps offset regional imbalances in income and economic growth.

Question 6

Explain how the German Bundesbank gained its low-inflation reputation?

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Question 7

The efficiency

Accepted Answer

The gain from a fixed exchange rate with the euro is greater when trade between say, Norway and the euro zone, is extensive than when it is small. This is because when there is extensive trade between two economies, the transaction costs associated with currency exchange can be significant. By having a fixed exchange rate, businesses and individuals can engage in trade without the added cost and uncertainty of currency fluctuations. Therefore, the efficiency gain from a fixed exchange rate is greater in the case of extensive trade.

Question 8

To join the EMU, a country must have

Accepted Answer

According to the Maastricht Treaty, a country must have a public-sector deficit no higher than 3 percent of its GDP in general to join the EMU.

Question 9

Describe the effects of the reunification of eastern and western Germany in 1990 on both Germany and its neighboring European countries using the AA-DD framework.

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Question 10

To join the EMU, a country must have a public debt below or approaching a reference level of

Accepted Answer

A country must have a public debt below or approaching the reference level of 60 percent of its GDP to join the EMU. This is known as the Maastricht criteria and is one of the convergence criteria that countries must meet in order to adopt the euro.

Question 11

Describe the main provisions of the Maastricht Treaty of 1991.

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Question 12

Discuss the effects of the reunification of eastern and western Germany in 1990 on both Germany and its neighboring European countries.

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Question 13

How were the initial members of EMU chosen? How will new members be admitted? What is the structure of the complex of financial and political institutions that govern economic policy in the euro zone?

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Question 14

To join the EMU, a country should have no more than

Accepted Answer

To join the EMU, a country should have no more than 1.5 percent inflation rate above the average of the three EU member states with the lowest inflation. This is referred to as the "convergence criterion" and is one of the conditions that a country must meet in order to adopt the euro as its currency.

Question 15

The main function of the 1997 Stability and Growth Pact (SGP) was to

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Question 16

Why did the EU countries move away from the EMS toward the goal of a single shared currency?

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Question 17

A major economic

Accepted Answer

Fixed exchange rates provide a stable and predictable environment for businesses and individuals who engage in international transactions. This reduces uncertainty and makes it easier to plan and execute transactions across borders. On the other hand, floating exchange rates can be more volatile and less predictable, which can make it harder to plan and execute transactions.

Question 18

Under ERM 2 rules, the national central bank of an EU member with its own currency can suspend euro intervention operations

Accepted Answer

According to ERM 2 rules, a national central bank of an EU member with its own currency can suspend euro intervention operations if they result in money supply changes that threaten to destabilize the domestic price level. This is to ensure that the domestic economy is not negatively affected by the intervention operations. Civil war or current account deficit/surplus are not relevant factors for suspending euro intervention operations.

Question 19

The monetary efficiency

Accepted Answer

The monetary efficiency gain from pegging the Norwegian krone to the euro would be higher if factors of production can migrate freely between Norway and the euro area, as this would facilitate smoother adjustments to economic conditions and enhance the benefits of a fixed exchange rate system by promoting more integrated markets.

Question 20

What is the purpose of the following figure?

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Quiz 20: Optimum Currency Areas and the European Experience