Question : 21.3   The Theory of Optimum Currency Areas 1) What the biggest : 1303719

 

 

21.3   The Theory of Optimum Currency Areas

 

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

A) low mobility of labor, higher labor productivity, lower level of intra-regional trade

B) high unionization of U.S. Labor force

C) high mobility of labor force, more transfer payments between regions

D) higher uniformity of population’s taste in consumption

E) more specialized labor force and natural resource advantages

 

2) A major economic

A) benefit of fixed exchange rates is that they simplify economic calculations and provide a more predictable basis for decisions that involve international transactions than do floating rates.

B) benefit of floating exchange rates it that they simplify economic calculations and provide a more predictable basis for decisions that involve international transactions than do fixed rates.

C) cost of fixed exchange rates it that they simplify economic calculations and provide a more predictable basis for decisions that involve international transactions than do currency board rates.

D) benefit of flexible exchange rates it that they simplify economic calculations and provide a more predictable basis for decisions that involve international transactions than do crawling peg rates.

E) benefit of fixed exchange rates is that the value of goods will remain constant across a large region of consumers.

 

 

3) The efficiency

A) gain from a fixed exchange rate with the euro is smaller when trade between say, Norway and the euro zone, is extensive than when it is small.

B) gain from a fixed exchange rate with euro is greater when trade between say, Norway and the euro zone, is extensive than when it is small.

C) loss from a fixed exchange rate with the euro is smaller when trade between say, Norway and the euro zone, is extensive than when it is small.

D) gain from a fixed exchange rate with euro is the same as when trade between say, Norway and the euro zone, is extensive than when it is small.

E) gain from a fixed exchange rate with euro is the same as when trade between say, Norway and the euro zone, is small than when it is small.

 

 

4) The monetary efficiency

A) loss from pegging the Norwegian krone to the euro (for example) will be higher if factors of production can migrate freely between Norway and the euro area.

B) gain from pegging the Norwegian krone to the euro (for example) will be lower if factors of production can migrate freely between Norway and the euro area.

C) gain from pegging the Norwegian krone to the euro (for example) will be higher if factors of production can not migrate freely between Norway and the euro area.

D) gain from pegging say the Norwegian krone to the euro (for example) will be higher if factors of production can migrate freely between Norway and the euro area.

E) gain or loss from pegging the Norwegian krone to the Euro cannot be predicted using the available information.

 

5) Which one of the following statements is TRUE?

A) The less extensive are cross-border trade and factor movements, the greater is the gain from a fixed cross-border exchange rate.

B) The more extensive are cross-border trade and factor movements, the greater is the loss from a fixed cross-border exchange rate.

C) The more extensive are cross-border trade and factor movements, the greater is the gain from a fixed cross-border exchange rate.

D) The more extensive are cross-border trade, the greater is the loss from a fixed cross-border exchange rate.

E) The more extensive are factor movements, the greater is the loss from a fixed cross-border exchange rate.

 

 

6) A country that joins an exchange rate area

A) gives up its ability to use the exchange rate for the purpose of stabilizing output and employment.

B) does not give up its ability to use the exchange rate and monetary policy for the purpose of stabilizing output and employment.

C) gives up its ability to use the exchange rate and monetary policy for the purpose of stabilizing output and employment.

D) gives up its ability to use only monetary policy for the purpose of stabilizing output and employment.

E) does not gives up its ability to use only monetary policy for the purpose of stabilizing output and employment.

 

 

7) When the economy is disturbed by a change in the output market

A) a fixed exchange rate has an advantage over a flexible rate.

B) a floating exchange rate has an advantage over a fixed rate.

C) a crawling peg exchange rate has an advantage over a flexible rate.

D) a floating exchange rate has the same effect as fixed rate.

E) a flexible exchange rate is not as effective as a fixed exchange rate.

 

8) Which one of the following statements is TRUE?

A) A fixed exchange rate automatically cushions the economy’s output and employment by allowing an immediate change in the relative price of domestic and foreign goods.

B) A flexible exchange rate does not automatically cushions the economy’s output and employment by allowing an immediate change in the relative price of domestic and foreign goods.

C) A flexible exchange rate automatically cushions the economy’s output and employment by allowing an immediate change in the relative price of domestic and foreign goods.

D) A flexible exchange rate automatically cushions the economy’s output and employment by allowing an immediate change in the absolute price of domestic and foreign goods.

E) A fixed exchange rate automatically cushions the economy’s output and employment by allowing an immediate change in the absolute price of domestic and foreign goods.

 

 

9) When the exchange rate is

A) flexible, purposeful stabilization is more difficult because monetary policy has no power at all to affect domestic output and employment.

B) fixed, purposeful stabilization is less difficult because monetary policy has no power at all to affect domestic output and employment.

C) fixed, purposeful stabilization is more difficult because monetary policy has no power at all to affect domestic output and employment.

D) a crawling peg, rather than fixed, purposeful stabilization is more difficult because monetary policy has no power at all to affect domestic output and employment.

E) fixed rather than crawling peg purposeful stabilization is more difficult because fiscal policy has no power at all to affect domestic output and employment.

 

 

10) When Norway unilaterally fixes its exchange rate against the euro and leaves the krone

A) free to float against the non-euro currencies, it is able to keep at least some monetary independence.

B) free to float against the non-euro currencies, it is unable to keep at least some monetary independence.

C) free to float against the non-euro currencies, it is able to keep its monetary independence.

D) run by crawling peg against the non-euro currencies, it is able to keep at least some monetary independence.

E) fixed against the non-euro currencies, it is unable to keep its monetary independence.