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1 | |
Until the end of the nineteenth century money was metallic and a large number of currencies circulated side by side. |
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| | A) | TRUE |
| | B) | FALSE |
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2 | |
The first two European monetary unions, the Latin Monetary Union and the Scandinavian Monetary union were not only built on harmonized coinage, but also had a common central bank with clear coordination of national monetary authorities. |
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| | A) | TRUE |
| | B) | FALSE |
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3 | |
Under Hume’s price-specie mechanism, a nation which purchases more imports than exports tends to accumulate gold. |
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| | A) | TRUE |
| | B) | FALSE |
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4 | |
The Bretton Woods System retained gold as the ultimate source of value but the only currency directly tied to gold was the US dollar. |
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| | A) | TRUE |
| | B) | FALSE |
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5 | |
After the demise of the Bretton Woods system, Continental Europe tried to build a regional exchange system, the snake. It failed due to a lack of clear rule and coherence. |
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| | A) | TRUE |
| | B) | FALSE |
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6 | |
Under the pure gold standard, demand for money was driven by ________ while the supply for gold was driven by _________. There was no reason for the two to grow harmoniously and this caused protracted recessions and inflations. |
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| | A) | current account imbalances, capital flows |
| | B) | output growth, gold discoveries and production |
| | C) | financial account imbalances, trade flows |
| | D) | output growth, capital flows |
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7 | |
Within the Eurozone, when one country runs a balance of payments surplus, it receives __________ of euros. A deficit country can no longer use __________ to re-establish competitiveness. |
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| | A) | inflows, the exchange rate |
| | B) | inflows, trade barriers |
| | C) | outflow, the capital account |
| | D) | outflow, wage adjustments |
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8 | |
Under the Bretton Woods system all currencies were defined in terms of the dollar; exchange rates were ___________; and a new institution, the ___________, was created and this provided financial support and oversaw national policies. |
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| | A) | pegged to the value of gold, World Bank |
| | B) | fixed, EMS |
| | C) | fixed but adjustable, IMF |
| | D) | aligned, IMF |
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9 | |
List the countries that joined the EMS in 1979. |
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10 | |
Which European Council Meeting set a precise schedule for the establishment of monetary union? |
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11 | |
During the first ten years of the EMS, inflation rates diverged and realignments were chronic. To address this problem, European countries: |
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| | A) | pegged their currency to the DM, the largest member with the lowest rate of inflation. |
| | B) | set a wide band of fluctuation within which currencies were to be aligned. |
| | C) | pegged their currencies to the US$. |
| | D) | abandoned the system and switched to floating rates. |
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12 | |
Within the Eurozone, a country cannot change its exchange rate to re-establish the competitiveness of its exports. Adjustments have to work through: |
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| | A) | inflation and interest rates. |
| | B) | prices and wages. |
| | C) | interest rates and budget deficits. |
| | D) | labour markets and interest rates. |
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13 | |
During the interwar period, different European countries attempted to resurrect the gold standard but failed. Two important lessons emerging fron this period are: |
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| | A) | preservation of the value of a currency on the foreign exchange is essential to dispel hyperinflation and ‘managed trade’ systems are important to protect industry during recessionary periods. |
| | B) | undervalued currencies can help a nation escape recessions and rigid adherence to fixed exchange rate parities hurt national welfare. |
| | C) | exchange rate misalignments breed trade barriers and rigid alliance to fixed exchange rate parities are difficult to maintain. |
| | D) | exchange controls help stabilise the currencies and domestic policy misbehaviour saps fixed exchange rates. |
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14 | |
Under Hume’s price-specie mechanism an accumulation of gold in the home country leads to: |
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| | A) | higher trade barriers |
| | B) | a recession in foreign countries. |
| | C) | debasement of the currency. |
| | D) | higher prices in the home country. |
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15 | |
The automaticity under Hume’s mechanism requires: |
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| | A) | central bank independence, neutrality of money and paper money. |
| | B) | full gold convertability at fixed price, full backing of banknotes, and complete freedom of trade and capital movements. |
| | C) | gold coins in all countries, free movement of labour and common language. |
| | D) | full gold convertability of banknotes, free movement of labour and neutrality of money. |