Question 1

Explain why the oil price shocks after 1973 made countries unwilling to revive the Bretton Woods system of fixed exchange rates. See also Chapter 19.

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Question 2

When did the UK decide to adopt the Euro?

Accepted Answer

The UK has not adopted the Euro. They chose to keep their own currency, the Great British Pound (GBP).

Question 3

Which of the following statements is MOST accurate?

Accepted Answer

A high degree of economic integration between a country and the fixed exchange rate area it joins generally reduces the resulting economic stability loss due to output market disturbances. This is because closer economic integration facilitates smoother adjustments to shocks through mechanisms like more synchronized business cycles, better-aligned economic policies, and more robust trade and investment flows that can help absorb and mitigate the impacts of such disturbances.

Question 4

Explain why it may make sense for the United States, Japan, and Europe to allow their mutual exchange rate to float?

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Question 5

Which of the following statements is MOST accurate?

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Question 6

Explain why after, say Norway unilaterally pegs the krone to the euro, domestic money market disturbances will no longer affect domestic output despite the continuation of float-rate regime against non-euro currencies.

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Question 7

"The costs and benefits for a country from joining a fixed-exchange rate area such as the EMS depend on how well-integrated its economy is with those of its potential partners." Discuss.

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Question 8

Why does the LL schedule have a negative slope?

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The LL schedule has a negative slope because as the degree of economic interdependence rises, the economic stability loss from pegging to the area's currencies falls. This is because higher interdependence typically means that economic shocks are more symmetric between the countries, reducing the cost of giving up independent monetary policy.

Question 9

Which of the following best defines an optimum currency area?

Accepted Answer

An optimum currency area refers to a geographical region that is characterized by economies that are closely linked by factor mobility and trade in goods and services. This linkage is important because it allows countries to respond to economic shocks in a coordinated and efficient manner. The closer the economies are linked, the more suitable they are to form a monetary union and share a common currency. Regions that are only close in proximity or operate under similar economic policies may not have the same level of economic interdependence and may not be as suitable for forming an optimum currency area.

Question 10

How mobile is Europe's labor force?

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Question 11

Richard Baldwin's estimate was that the euro increased the trade level of its users by

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Question 12

Is Europe an optimum currency area?

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Question 13

The theory of optimum currency areas predicts that

Accepted Answer

The theory of optimum currency areas predicts that fixed exchange rates are most appropriate for areas that are closely integrated through international trade and factor movements. This is because fixed exchange rates reduce transaction costs and uncertainty, which can facilitate trade and investment flows. Additionally, a common currency can help mitigate the effects of asymmetric shocks between countries. The eurozone is an example of an area that is closely integrated through trade and factor movements and has adopted a fixed exchange rate system through the use of the euro.

Question 14

Explain why when Norway unilaterally fixes its exchange rate against the euro but leaves the krone free to float against the non-euro currencies, it is unable to keep at least some monetary independence.

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Question 15

How much trade do currency unions create?

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Question 16

Which of the following statements is the MOST accurate?

Accepted Answer

The introduction of the euro led to increased trade among EU countries due to lower transaction costs, elimination of currency exchange rate risk, and increased price transparency. This has been confirmed by various studies and statistics over the years.

Question 17

Why does the GG schedule have a positive slope?

Accepted Answer

The GG schedule represents the relationship between a country's economic integration with a fixed exchange rate area and the monetary efficiency gain it gets from joining the area. The slope of the GG schedule is positive because the monetary efficiency gain increases as the economic integration with the area increases. This is because a higher degree of economic integration with the area leads to a greater trade volume and a more stable economic environment, which enhances the effectiveness of the fixed exchange rate. Therefore, the cost of giving up monetary autonomy decreases as economic integration increases, resulting in a higher monetary efficiency gain.

Question 18

Explain why even owners of capital that cannot be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows.

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Question 19

Discuss the benefits and costs of joining a fixed-exchange area.

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Question 20

Compared with inter-regional trade in the he United States, intra-EU trade

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Quiz 21: Optimum Currency Areas and the Euro

Explain why the oil price shocks after 1973 made countries unwilling to revive the Bretton Woods system of fixed exchange rates. See also Chapter 19.

When did the UK decide to adopt the Euro?

Which of the following statements is MOST accurate?

Explain why it may make sense for the United States, Japan, and Europe to allow their mutual exchange rate to float?

Which of the following statements is MOST accurate?

Explain why after, say Norway unilaterally pegs the krone to the euro, domestic money market disturbances will no longer affect domestic output despite the continuation of float-rate regime against non-euro currencies.

"The costs and benefits for a country from joining a fixed-exchange rate area such as the EMS depend on how well-integrated its economy is with those of its potential partners." Discuss.

Why does the LL schedule have a negative slope?

Which of the following best defines an optimum currency area?

How mobile is Europe's labor force?

Richard Baldwin's estimate was that the euro increased the trade level of its users by

Is Europe an optimum currency area?

The theory of optimum currency areas predicts that

Explain why when Norway unilaterally fixes its exchange rate against the euro but leaves the krone free to float against the non-euro currencies, it is unable to keep at least some monetary independence.

How much trade do currency unions create?

Which of the following statements is the MOST accurate?

Why does the GG schedule have a positive slope?

Explain why even owners of capital that cannot be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows.

Discuss the benefits and costs of joining a fixed-exchange area.

Compared with inter-regional trade in the he United States, intra-EU trade