Topic 3, The Economic and Monetary Union Flashcards
- A Monetary Union:
a) Increases the autonomy of the monetary policy of member countries
b) Implies flexible exchange rates between member countries
c) Is expected to reduce transaction costs between the member countries of the union and the rest of the world
d) Promotes investment and trade between the countries that form it because it reduces uncertainty in their transactions
d) Promotes investment and trade between the countries that form it because it reduces uncertainty in their transactions
- Countries that have adopted a single currency:
a) May lose competitiveness when their inflation rate is consistently/repeatedly higher than that of partner countries
b) Cannot implement an independent monetary policy
c) Cannot use their exchange rate policy as a way of correcting imbalances
d) All the other answers are correct
d) All the other answers are correct
- Following the theory of Optimum Currency Areas, it would be more difficult for countries to form one if:
a) Countries are highly open and trade a lot with one another
b) Their production structures and export structures are clearly different
c) Countries forming the currency area have synchronized business cycles
d) Workers are highly mobile between nations
b) Their production structures and export structures are clearly different
- Within the Eurozone, when one country runs a balance of payments deficit, it experiences __________ of euros. A deficit country can no longer use __________ to re-establish competitiveness.
a) inflows, the exchange rate
b) inflows, wage adjustments
c) outflows, the exchange rate
d) outflows, the capital account
c) outflows, the exchange rate
- The “Convergence Criteria” for joining the European Monetary Union (EMU) included in the Treaty of Maastricht establish that
a) A country’s buget deficit should not exceed 60% of its GDP except in exceptional circumstances
b) A country’s buget deficit should not exceed 3% of its GDP except in exceptional circumstances
c) A country’s inflation rate should not exceed a 2% and its long term interest rate should not exceed a 5%
d) New EU members joining the EU after European Monetary Union came into being, would not have to satisfy the same criteria as the older members did
b) A country’s buget deficit should not exceed 3% of its GDP except in excepcional circumstances
- The Stability and Growth Pact is an agreement that all countries that form the European Monetary Union should respect and, among other things, states that:
a) The deficit of the EU budget cannot exceed 3% to EU GDP except in exceptional circumstances
b) Public debt in the eurozone should not exceed 60% to EU GDP
c) No country belonging to the eurozone can issue public debt above 3% to GDP
d) The public/government debt of a country belonging to the eurozone should not exceed 60% to GDP
d) The public/government debt of a country belonging to the eurozone should not exceed 60% to GDP
- Regarding the European Monetary Union:
a) The European System of Central Banks (ESCB) is composed by the European Central Bank
(ECB) and the national central banks of the countries which share the euro
b) Monetary policy decisions have always the intended effects on the level of prices
c) The main goal of the monetary policy implemented by the Eurosystem is price stability,
understood as having an inflation rate close to but below a 2% in the mid term
d) Monetary policy is a competence shared between the Eurosystem and the Commission
c) The main goal of the monetary policy implemented by the Eurosystem is price stability, understood as having an inflation rate close to but below a 2% in the mid term
- Regarding the European Monetary Union
a) Exchange rate policy is a competence shared between the Eurosystem and the Euro Parliament
b) The main goal of the monetary policy implemented by the Eurosystem is price stability, which is understood as keeping interest rates stable
c) The Eurosystem is composed of the European Central Bank (ECB) and the national central banks of the countries which share the euro
d) The ECB is run by the Governing Council, which is made up of an executive board of six members elected for an 8 year non-renewable term
c) The Eurosystem is composed of the European Central Bank (ECB) and the national central banks of the countries which share the euro
- In the crisis which started in 2007
a) The financial crisis was caused by mounting public debt which could not be absorbed by the banking system
b) The financial crisis was the first one to appear, specifically in the USA as a result of risky lending on the mortgage market
c) The economic crisis (recession) was the first crisis to appear, leading to a financial crisis once governments placed the financial system at risk of bankruptcy
d) The sovereign debt crisis was the first crisis to appear, as a result of wasteful government overspending
b) The financial crisis was the first one to appear, specifically in the USA as a result of risky lending on the mortgage market
- Among the measures already taken at the European level to address/tackle the crisis, one of the following is NOT CORRECT
a) Measures to improve financial supervision (such as the European Supervisory Agencies)
b) Measures addressed at strengthening fiscal surveillance (such as the European Semester)
c) Instruments designed to provide financial assistance to Eurozone countries (like the European Stability Mechanism)
d) Measures addressed at setting up a common federal tax and a transfer system that allows to deepen financial solidarity between countries in times of crisis
d) Measures addressed at setting up a common federal tax and a transfer system that allows to deepen financial solidarity between countries in times of crisis
The Maastricht Treaty established 5 entry conditions
- Inflation (below a ceiling)
- Long-term nominal interest rates (again a ceiling and stable)
- Stable exchange rates
- Limited budget deficit (3% GDP)
- Limited public debt (60% GDP)
