Macro Multiple Choice

Which of the following best explains the “domino effect” described in Chapter 1?

Which event most strongly accelerated Eastern European interest in joining the EU?

The collapse of the Soviet Union

Which statement about the EU budget is correct?

It relies heavily on national contributions (GNI-based resources)

The “impossible trinity” states that a country cannot simultaneously maintain

Free capital mobility, a fixed exchange rate, and monetary independence

Under the impossible trinity, a monetary union implies that

Members sacrifice exchange-rate autonomy

Purchasing Power Parity predicts that in the long run

Exchange rates adjust to maintain interest rate parity

Which aspect of the Gold Standard is most similar to today’s Eurozone?

The failure of the interwar Gold Exchange Standard was largely due to

Misaligned exchange-rate restorations after WWI

The EMS ultimately collapsed because

The central question of OCA theory is

Whether countries benefit economically from sharing a currency

One major benefit of a currency area is

Elimination of asymmetric shocks

One major cost of a currency area is

Loss of the exchange-rate adjustment tool

According to the OCA criteria, which condition increases the desirability of a currency union?

High openness to trade with other members

A key principle for ECB monetary policy is

The maintain price stability

Which is not one of the five convergence criteria for joining the euro?

Low inflation

The ECB’s primary monetary policy instrument is

Open market operations

Fiscal externalities in a monetary union arise because

One country’s fiscal policy affects inflation and interest rates in the entire union

Under the original SGP, member states were required to

Maintain budget deficits below 3% of GDP

A fiscal policy is pro-cyclical when

Taxes and spending stabilize economic fluctuations

Which mechanism acts as an automatic stabilizer?

Progressive taxation