GPE exam 3

after implementation of the single european act, value added taxes in the EU were

partially harmonized with min and max permissible values set by the EU

according to the principle of subsidiarity, in which of the following areas should the authority for making decisions be taken from national governments and given to the EU

pollution of a trans-national waterway

which of the following nations DOES use the euro and participate in the Treaty on European Union - Sweden - Portugal - the UK - Norway

portugal

if britain and the EU do not come to a final agreement before the deadline, what will happen

trade rules between the two will revert to WTO rules and other issues may remain unresolved

If Britain and the EU do not come to a final agreement before the deadline, what will happen?

trade rules between the two will revert to WTO rules and others may remain unresolved

the EU became an economic union with the implementation of

treaty of EU

the founding document of the European Economic Community and the document that continues to provide the basis for the EU is the

treaty of rome

which treaty/agreement would be associated with creating free trade area for the EU

treaty of rome

which member was the first country to leave the EU

united kingdom

the "four freedoms" DO NOT include

vote in local elections

the original European Economic Community

was a free trade area

which of the following does not finance the EU budget

a european union income tax

the single currency project in the EU will be most successful if european labor is relatively

mobile and business cycles are synchronized

subsidiarity requires nations to give up some of their

national sovereignty

the common currency of the EU, the euro, was created in

1999

As a result of Brexit, all of the following tasks must be completed EXCEPT A) Britain must abandon the euro and reinstate the pound. B) Britain and the EU must renegotiate their trade relationship and treaties. C) Britain and the EU must reestablish custom inspection systems. D) Britain and the EU must settle the status of EU citizens working in Britain and vice versa.

A) Britain must abandon the euro and reinstate the pound.

which is true: - Adopting the Single European Act had broad popular support; the Treaty on European Union was more controversial. - The Single European Act was expected to create economic benefits by reducing the costs and risks of currency market transactions. - All members of the European Union adopted the euro as their currency. - The reunification of Germany had little impact on the adoption of the Treaty on European Union.

Adopting the Single European Act had broad popular support; the Treaty on European Union was more controversial.

explain the costs and benefits of a single currency.

Benefits include the reduction of transactions costs from currency conversion and reduction of exchange rate uncertainty. Costs include the lack of ability to pursue independent monetary policies, and the lack of ability to use the exchange rate as a buffer against external shocks.

all of the reasons below exacerbated the EU's banking crisis of 2007-2009 into a debt crisis except for - Individual countries no longer had a national currency they could devalue. - EU nations cannot borrow funds from the IMF. - Austerity economics was very unpopular politically. - By design, the European Central Bank cannot act as a lender of last resort to nations on the verge of sovereign default.

EU nations cannot borrow funds from IMF

A narrow target zone exchange rate band (such as the EEC had until 1992) is most similar to

a fixed exchange rate system with a soft peg

before the creation of the European Economic Community, there was the

European Coal and Steel Community

which of the following is NOT one of the major problems with expanding the EU - Expansion has become a more difficult task because of the unwillingness of the eastern and central European countries to change. - The gap between the poorest and richest members has grown, creating economic pressures on migration. - The EU's governance structures were not designed for twenty-seven voting members. - Newer members with weak democracies are more subject to having their governments captured by anti-democratic forces.

Expansion has become a more difficult task because of the unwillingness of the eastern and central European countries to change.

as measured by GDP, the largest country in the EU is

Germany

which of the following is a problem NOT faced by the EU in the future - High birth rates - An aging population - A shrinking workforce - Insufficient funding to support countries in crisis

High birth rates

the primary source of gains from the single european act were expected to be from

increased competition and economies of scale

How did the Single European Act create economic gains in the EU

It was predicted that there would be more trade, lower price mark-ups, increased concentration of firms due to the ability to take advantage of scale economies, and increased price convergence. Trade among EC partners rose from 61.2 percent of the total trade of member states to 67.9 percent between 1985 and 1995. The percent of total output in each industry that is produced by the four largest firms rose in most industrial sectors. The share of world mergers and acquisitions that took place in Europe rose. It is estimated that between 300,000 and 900,000 more jobs were created, and GDP in 1994 was 1.1 to 1.5 percent greater than it would have been without the measures taken to implement the SEA and the SMP. Also, income levels began to converge, as the per capita incomes of the low-income European countries began to rise toward the average.

which nation is NOT one of the current members of the EU: - Greece - Germany - Sweden - Norway

Norway

Explain the theories as to why the single currency was implemented quickly.

One explanation is that EU leaders believed that the potential gains were large and that the potential costs would lessen as countries became more integrated. Another explanation is that EU leaders were swept up in the excitement of the SMP and wanted to push further integration. A third explanation is that German reunification caused anxiety in some European capitals and this was a strategy to tie Germany ever more deeply into a pan-European project. One of the most widely voiced explanations is that the single currency became necessary after the removal of capital controls that took place under the SMP. Before 1990, many countries had controls on the movement of foreign exchange into their country. The removal of these controls made it easier to speculate in foreign currency markets, which is part of what led to the problems in the early 90s. Creation of a single currency reduces the frictions arising from competitive devaluations and issues of fluctuating exchange rates due to speculation.

The hardest hit countries of the 2007-2009 Euro-crisis were

Portugal, Ireland, Italy, Greece and Spain.

Why is the issue of Northern Ireland a contentious part of Brexit?

Reinstating passport and customs inspections between Northern Ireland and Ireland may undermine the peace accord between the two.

one drawback to a single currency is

individual nations cannot use monetary policy to stabalize the economy

Explain why the European exchange rate mechanism (ERM) ran into problems in the 1990s.

The ERM effectively linked EC exchange rates for two decades. However, problems began in 1990 with Germany's decision to speed up reunification. Economic conditions in East Germany were worse than expected, requiring that Germany make large investments in infrastructure and the environment. This resulted in a very large fiscal stimulus to the German economy. Such large expenditures were expected to have an inflationary impact, and so Germany's central bank raised interest rates to counteract that possibility. High interest rates in Germany made German financial instruments more attractive and caused capital to flow into Germany from the other EU countries. This resulted in the selling of other currencies to buy German marks (and then German bonds) and caused the pound, the franc, and other currencies to fall in value. Other countries could have raised interest rates to match Germany's, but since some of the countries, particularly the United Kingdom, were in recession, this would have been more contractionary to their economies. Faced with the choice between staying in the ERM and harming their own economies or dropping out of the ERM, countries were caught in a dilemma. France stayed in the ERM but went into recession. The United Kingdom abandoned the ERM and let the pound float freely. Spain shifted the center of the band. The band was later widened to 15 percent for countries that remained in the ERM.

which of the following is true - the fact that 10 additional nations joined the European Union in May 2004 is an example of deepening. - There is no possibility of further widening the European Union. - Countries with a per capita income below the poverty level, as defined by the World Bank, cannot join the EU. - The EU has funds in its budget to try to close income gaps between rich and poor members.

The EU has funds in its budget to try to close income gaps between rich and poor members.

Describe the history and consequent deepening as the European Union developed. Which treaties created which level of economic integration? Do countries have the ability to participate in some levels of integration and not others? Give specific examples.

The Treaty of Rome created the basics for a free trade area as well as a political infrastructure for noneconomic integration.The Single European Act created a common market among the participants and dealt with an outstanding customs union issues.The Treaty on European Union (or Maastricht Treaty) brought the participating countries into economic union.Some countries (such as Norway and Switzerland) participate in the common market but are not members of the EU. Only 12 countries currently participate in the treaty on European Union. For example, the UK, Denmark, and Sweden will never be required to use the euro.

Describe the criteria for membership in the European Union. Given the criteria, what are some of the major challenges with expanding the EU eastward? What are the potential problems of Turkey joining the EU?

The criteria for membership include that the nation must be a stable, functioning democracy, have a market-based economy, and formally adopt the EU-wide rules, called the "acquis communautaire." As the EU expands east, the nations have large agricultural sectors, which creates issues for the Common Agricultural Policy. Concerns about migration, given labor mobility are also a problem. How to govern to bigger blocks as well as general practice with governance for nations in transition can be questions. A major issue remains the difference in income between the old EU members and the new members. Turkey is especially difficult because it has a large population relative to other members, its GDP per capita is about 20 percent of the EU average at market rates, and it has issues in terms of whether it represents a "stable democracy," especially in terms of freedom of speech, torture in prisons, and civilian control over the military. Turkey has troubled relations with Cyprus, an EU member that can veto its accession.

Describe why the European exchange rate mechanism (ERM) was founded and how it worked.

The formation of the EMS in 1979 was a significant deepening of the EC and served to prepare the way for the eventual introduction of a single currency. It was designed to prevent extreme currency fluctuations by tying each currency's value to the weighted average of the others. The ERM was an example of a soft peg with an exchange rate band. Each currency in the band was fixed to the ECU, but was allowed to fluctuate several percentage points up or down. If a currency began to move out of the bandwidth, the central bank of the country was obligated to intervene by either buying its currency to prop it up, or by selling currency to push it down.

Explain the major problems that occurred with the implementation of the SMP

There were problems with restructuring. Less efficient firms are squeezed out, and the more efficient ones grow; overall economic welfare expands as countries concentrate on what they do best, which inevitably means abandoning some industries and expanding others. A second major obstacle was the problem of harmonizing standards. A third difficulty was the issue of value-added taxes (VAT), which were difficult to harmonize, although the differences were reduced. Finally, it has been difficult to eliminate discrimination in public procurement of goods and services.

the European Currency Unit (ECU)

acted as a unit of account

EU deepening refers to

activities that cause increased levels of integration in the national economies.

according to the text, what is the major long run issue facing the EU

aging population

the schengen agreement

allows for the passage of people and goods between countries without passport and customs control

cohesion funds in the EU budget

are used to fund infrastructure projects in less developed region of the EU

a major reason for creating the European Monetary System was

avoid competitive exchange rate devaluations

a major reason for creating the european monetary system was to

avoid competitive exchange rate devaluations

the purpose of creating the European exchange rate mechanism (ERM) was to

base trade and investment on comparative advantage

two industries which formed roots of the EU are

coal and steel

which of the following is false: - cohesion funds are used for job creation - cohesion funds are significant part of EU spending - cohesion funds are used to make EU countries more culturally similar - cohesion funds are targeted towards less developed regions within the EU

cohesion funds are used to make EU countries more culturally similar

with the full implementation of the Single European Act, the EU became a

common market

which of the following is a limitation when adopting a single currency

countries cannot use currency devaluation to restore demand for exports or counteract a recession

in the face of capital outflow

countries had to raise interest rates to stay in the ERM

before European currencies were linked in 1979,

countries would competitively devalue their currencies to capture exports

before european currencies were linked in 1979

countries would competitively devalue their currencies to capture exports

the Single European Act

created a common market for capital and labor

the delors report

created a timetable and steps to economic union.

the total budget for EU

devotes one-third of its total expenditures to agricultural support and rural development programs

the principle of subsidiarity is a way to

divide power between national governments and the EU

As Europe explored monetary union, evidence to date suggests that increased variability in exchange rates

does not seem to have an impact on foreign trade an investment

the currency crisis of 1992 caused France and a number of other countries to choose between

doing the right thing for their domestic economy and defending the exchange rate

the Maastricht Treaty

established the european central bank

which of the following sets policy rather than pursues legislation

european council

Faced with an exchange rate falling outside the ERM band, the United Kingdom

eventually dropped out of the ERM to avoid worsening a recession

faced with an exchange rate falling outside the ERM band, the UK

eventually dropped out of the ERM to avoid worsening a recession

Eu widening refers to

extending the boundaries of the EU to include new members

EU widening refers to

extending the boundaries of the EU to include new members.

the single most important factor in the 1992 crisis of the EMS was

german reunification efforts

the "four freedoms" are an important goal of the

single european act

when Germany increased fiscal spending and raised interest rates in the early 1990s

some other countries were forced to raise interest rates to stay in the ERM

the ERM

succeeded for 20 years, to the surprise of many economists

which of the following is not part of the EU: - Luxembourg - Austria - Greece - Switzerland

switzerland

originally, the EU was called

the European Economic Community

briefly describe the EU

the European Union (EU) is an economic union of 28 nations. It has its own revenue and budget, a set of institutions for making laws and regulating areas of common interest, a common currency, and freedom of movement for people, money, goods, and services.

the combined EU market is similar in population and GDP to

the USMCA (NAFTA) market

the primary determinant of social spending in most countries depends on

the age structure of their population

some countries have not joined the Schengen Agreement or have backed away from their commitment for all of the reasons below except - migration from North Africa and the Middle East has overwhelmed immigration capabilities. - terrorists have taken advantage of peripheral countries in order to gain entrance to the EU. - it is difficult for some countries to demonstrate control over their own borders. - the costs of participation grew too high during the 2009 recession.

the costs of participation grew too high during the 2009 recession.

the criteria for full membership to the EU includes all of the following except - the country must be participating in free trade of all its goods and services. - the country must be following market-based economics. - the country must formally adopt the EU-wide rules such as technical standards, environmental inspections, banking supervision, etc. - the country must be a stable functioning democracy.

the country must be participating in free trade of all its goods and services.

which of the following statements is true: - the EU is the oldest, largest, and most ambitious integration agreement in the world today - members in the EU is limited to countries of Western Europe - the establishment of the EU has failed to mitigate hostilities across the European continent - no country has ever left the EU

the european union is the oldest, largest, and most ambitious integration agreement in the world today

one of the most controversial features of the Maastricht Treaty is

the lack of ability of individual countries to set their own monetary policies

which of the following is true: - the majority of countries in the EU are relatively small - all countries of Western Europe are members of the EU - membership in the EU is mandatory for countries in Western Europe - the EU is too small to play a major role in international political or trade arrangements

the majority of countries in the EU are relatively small

the treaty that took the participating countries from a free trade area to a common market

the single european act

the principle of subsidiarity states that

the union only has the authority to deal with issues best handled by international action