Fiscal And Monetary Policy(Economics > Monetary Union ) Questions and Answers

Question 1. Which of the following is a problem for monetary policy in a currency union ?
  1.    Money supply is more difficult to control in a currency union.
  2.    The inflation-unemployment trade-off is more unstable in a currency union
  3.    All of these answers describe problems for monetary policy in a currency union
  4.    The interest rate may be higher than is appropriate for economic conditions in some countries while it’s lower than is appropriate in some others mo
Explanation:-
Answer: Option D. -> The interest rate may be higher than is appropriate for economic conditions in some countries while it’s lower than is appropriate in some others mo
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 2. What is fiscal federalism ?
  1.    A fiscal system for a group of countries in which fiscal policy is set in a treaty signed by all the countries
  2.    A fiscal system for a group of countries in which government budget deficits are strictly limited
  3.    A fiscal system for a group of countries involving a common fiscal budget and a system of taxes and fiscal transfers across countries
  4.    A fiscal system in which fiscal policy is jointly determined by local and national politicians
Explanation:-
Answer: Option C. -> A fiscal system for a group of countries involving a common fiscal budget and a system of taxes and fiscal transfers across countries
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 3. Which one of the following is not a characteristic that reduces the cost of a signals currency ?
  1.    A high degree of labour mobility among the countries of the common currency area
  2.    A high degree of capital mobility among the countries of the common currency area
  3.    None of the characteristics described in these answers They are all characteristics that reduce the cost of a single currency
  4.    A high degree of trade integration among the countries of the common currency area
Explanation:-
Answer: Option D. -> A high degree of trade integration among the countries of the common currency area
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 4. Which of the following is a problem for fiscal policy in a currency union ?
  1.    The central bank controls interest rates on long-term bonds issued by the governments of the member countries of the currency union
  2.    Government of the member countries of the currency union may run large budget deficit and so crowd out private investment
  3.    government of the member countries of the currency union may run large budget deficits and so impose costs on other countries by pushing up interest r
  4.    It is difficult to raise enough tax revenue to pay for the operation of the currency union
Explanation:-
Answer: Option C. -> government of the member countries of the currency union may run large budget deficits and so impose costs on other countries by pushing up interest r
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 5. Which of the following could not be described as an asymmetric macroeconomic shock ?
  1.    None of these answers All of them are asymmetric macroeconomic shocks
  2.    A sudden and substantial fall in the worldwide demand for French wine
  3.    An epidemic of an animal disease in a country that significantly reduces the country’s agricultural output
  4.    A sudden and substantial rise in prices on the world oil market
Explanation:-
Answer: Option D. -> A sudden and substantial rise in prices on the world oil market
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 6. Which one of the following is not an argument in support of the UK joining the EMU ?
  1.    None of these arguments they are all arguments in support of the UK joining the UMU
  2.    The characteristics of the UK housing market make UK consumers expenditure very sensitive to changes in interest rates
  3.    The UK risks exclusion from the Euroland capital market with damaging consequences with damaging
  4.    The UK needs to be a member of the EMU in order to continue to attract such large share of foreign direct investment in EU countries
Explanation:-
Answer: Option B. -> The characteristics of the UK housing market make UK consumers expenditure very sensitive to changes in interest rates
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 7. To try to overcome the free rider problem, the members of EMU signed ?
  1.    the stability and growth pack
  2.    the European solidarity packs
  3.    the exchange rate mechanism pact
  4.    the responsibility and growth pack
Explanation:-
Answer: Option A. -> the stability and growth pack
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 8. A high degree of real wage flexibility will tend to reduce the cost to a country of joining a currency union because ?
  1.    All of the reasons given in these answers are correct
  2.    real wages fall rapidly in a recession and the economy moves quickly back to long run equilibrium so limiting the duration of the recession even when
  3.    workers will move from a country in which aggregate demand falls to other countries of the currency union, and so unemployment remains lower than it o
  4.    real wages fall and so offset the inflationary effect of switching from the old currency to the new common currency
Explanation:-
Answer: Option B. -> real wages fall rapidly in a recession and the economy moves quickly back to long run equilibrium so limiting the duration of the recession even when
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 9. If two countries A and B are member of a currency union and there is a shift in consumer preferences away from the goods of country A and towards those of country B than which one of the following would help to offset the effect of the resulting changes in aggregate demand in A and B on inflation and unemployment in the tow countries ?
  1.    A high degree of labour mobility between the tow countries
  2.    An increase in government spending in country (A)
  3.    A depreciation in the foreign exchange value of the common currency
  4.    A low degree of capital mobility between the two countries
Explanation:-
Answer: Option A. -> A high degree of labour mobility between the tow countries
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 10. How does the eurozone compare with USA as a possible optimal currency area (OCA) ?
  1.    The eurozone has a higher degree of labour mobility than the USA and labour law is much less restrictive in the erozone than in the USA On these measu
  2.    The eurozone has a lower degree of labour mobility than the USA and labour law is much more restrictive in the erozone than in the USA On these measur
  3.    The eurozone has a higher degree of labour mobility than the USA but labour law is much more restrictive in the erozone than in the USA On these measu
  4.    The eurozone has a lower degree of labour mobility than the USA and labour law is much less restrictive in the erozone than in the USA On these measur
Explanation:-
Answer: Option B. -> The eurozone has a lower degree of labour mobility than the USA and labour law is much more restrictive in the erozone than in the USA On these measur
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
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