Chapter 3

D) dollarization. 4) You have been hired as a consultant to the central bank for a country that has to any years suffered from repeated currency crises and depends heavily on the U.S. financiaram product markets. Which of the following policies would have the greatest effectiveness for reducing currency volatility of the client country with the United States? A) Dollarization. B) An exchange rate pegged to the U.S. dollar. C) An exchange rate with a fixed price per ounce of gold. D) An internationally floating exchange rate. 5) Which of the following is NOT an argument against dollarization? A) Dollarization causes a loss of sovereignty over domestic monetary policy. B) Dollarization removes currency volatility against the dollar. C) Dollarization causes the country to lose the power of seignorage. D) The central bank of the dollarized country loses the role of lender of last resort. 6) The ability of a country to profit from its ability to print money is known as A) profiteering B) dollarization C) seignorage D) inflation 3.4 The Birth of a European Currency: The Euro 1) Which of the following is NOT a required convergence criteria to become a full member of the European Economic and Monetary Union (EMU)? A) National birthrates must be at 2.0 or lower per person. B) The fiscal deficit should be no more than 3% of GDP. C) Nominal inflation should be no more than 1.5% above the average inflation rate for the three members with the lowest inflation rates in the previous year. D) Government debt should be no more than 60% of GDP. 2) According to the authors, what is the single most important mandate of the European Central Bank? A) Promote international trade for countries within the European Union. B) Price, in euros, all products for sale in the European Union. C) Promote price stability within the European Union. D) Establish an EMU trade surplus with the United States. 3) Which of the following is a way in which the euro affects markets? A) Countries within the Euro zone enjoy cheaper transaction costs. B) Currency risks and costs related to exchange rate uncertainty are reduced. C) Consumers and business enjoy price transparency and increased price-based competition. D) all of the above