|
| 1 | The EU’s monetary union was agreed in the 1986 Single European Act, but only implemented in the Amsterdam Treaty. |
 | A) | TRUE |
| B) | FALSE |
|
| 2 | The difference in membership between the European System of Central Banks and the Eurosystems is the national central banks of EU members who have not adopted the euro. |
| A) | TRUE |
| B) | FALSE |
|
| 3 | The ‘Convergence Criteria’ for joining the monetary union included: |
| A) | a country’s inflation rate should not exceed by more than 1.5 percentage points the average of the three lowest inflation rates achieved by the European Union member countries, and that its long-term interest rate should not exceed the average rates observed in the three lowest inflation rate countries by more than 2 percentage points. |
| B) | the country must have taken part in the ERM for at least two years without having had to devalue its currency, its public debt should not exceed 60% of its GDP or be moving in that direction, and its government deficit should be less than 3%. |
| C) | the country’s GDP growth rate should be at less than 50% of the average of the three fastest growing EU members. |
| D) | All of the above. |
| E) | All of the above except d. |
|
| 4 | The European System of Central Banks (ESCB) is composed of: |
| A) | the European Central Bank (ECB) and the national central banks of all EU Member States. |
| B) | all the organisations mentioned in a. plus the Bank for International Settlements. |
| C) | all the organisations mentioned in b. plus the IMF. |
| D) | the 20 European Commissioners. |
|
| 5 | The ECB is run by the Governing Council which is made up of: |
| A) | an Executive Board of six members, appointed by the heads of states or governments of the countries which have joined the monetary union. |
| B) | the governors of the national central banks of EU members in the Eurozone. |
| C) | the President of the EU, and two representatives of the EU Parliament. |
| D) | all of the above except c. |
|
| 6 | The target interest rate for the ECB is the European Over Night Index Average (EONIA), a weighted average of overnight lending transactions in the euro area’s interbank market. The ECB controls this by: |
| A) | requiring Eurozone banks to charge the prime clients an interest rate that is no more than plus or minus ½ percent from the target interest rate. |
| B) | establishing an ‘interest rate ceiling’ by offering to lend euros to banks at a fixed rate, and establishing a ‘interest rate floor’ by offering to borrow euros from banks at a fixed rate that is somewhat lower than the interest rate ceiling. |
| C) | conducting weekly auctions for reserve deposits that provide liquidity to the banking system. |
| D) | All of the above. |
| E) | All of the above except a. |
|
| 7 | The ECB is quite independent in two senses: it can define its ________ and it can decide how to conduct ________. |
| A) | President, public relations |
| B) | objectives, monetary policy |
| C) | President, monetary policy |
| D) | Board of Governers, voting in the Council |
|
| 8 | Monetary union started in 1999; this was 2 years behind schedule. |
| A) | TRUE |
| B) | FALSE |
|
| 9 | In 2003 there were 12 members of the monetary union; there were 11 members initially and Greece joined in 2001. |
| A) | TRUE |
| B) | FALSE |
|
| 10 | Interest rate decisions of the ECB are made on the basis of qualified majority voting. |
| A) | TRUE |
| B) | FALSE |
|
| 11 | Within the monetary union, there can only be a single short-term interest rate but longterm interest rates can differ form one country to another because: |
| A) | The ECB chooses different long-term rates. |
| B) | The ECB controls the short-term rate and leave the long-term rates to the markets. |
| C) | The long-term rate is controlled by national governments. |
| D) | The assertion above is wrong. |
|
| 12 | In the euro area, inflation rates can differ from one country to another because: |
| A) | The ECB only considers the euro area-wide inflation rate. |
| B) | The single monetary policy produces different effects. |
| C) | Fiscal policies are not aligned. |
| D) | A and C |
| E) | B and C |
|
| 13 | "The expectation theory of interest rate is wrong since it predicts that long-term interest rates must be the same in all euro area member countries, which is not the case" - What is wrong with this statement? |
| A) | The assumption that short-term rates will always be the same. |
| B) | The observation that long-term interest rates differ . |
| C) | The conclusion that the expectation theory predicts that long-term interest rates must be the same. |
| D) | A and B |
| E) | A and C |
|
| 14 | The Balassa-Samuelson principle predicts that: |
| A) | Inflation will always exceed the 2% level shosen by the ECB. |
| B) | Inflation will be higher in rich countries. |
| C) | Inflation will be higher in poor countries. |
| D) | Inflation rates must be the same throughout the euro area. |
|
| 15 | In order to enter the monetary union, the new EU members must satisfy the same criteria that the older members did. |
| A) | True |
| B) | False |