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| 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 |
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| 2 | The difference in membership between the European System of Central Banks and the Eurosystem is the national central banks of EU members who have not adopted the euro. |
| A) | True |
| B) | False |
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| 3 | Referring to the following list, the ‘Convergence Criteria’ for joining the monetary union - by Baldwin and Wyplosz also called the coronation theory - included:
(i) 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. (ii) 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 per cent of its GDP or be moving in that direction, and its government deficit should be less than 3 per cent. (iii) the country’s GDP growth rate should be at less than 50 per cent of the average of the three fastest growing EU members. |
| A) | (i) only |
| B) | (i) and (ii) |
| C) | (iii) only |
| D) | (i), (ii) and (iii) |
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| 4 | The endogeneity of the European Monetary Union means that the monetary union is an endogenous variable for further European Political Integration. |
| A) | True |
| B) | False |
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| 5 | 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 organizations mentioned in a. plus the Bank for International Settlements. |
| C) | all the organizations mentioned in b. plus the IMF. |
| D) | the European Central Bank (ECB) and the national Central banks of monetary union Member States. |
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| 6 | The strategy of the European Central Bank gives priority to money targeting instead of inflation targeting. |
| A) | True |
| B) | False |
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| 7 | 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) | a and b |
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| 8 | 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 0.5 per cent 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) | B and C |
| E) | A and C |
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| 9 | 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 Governors, voting in the Council |
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| 10 | In 2015 there were 19 members of the monetary union; there were 11 members initially and Greece joined in 2001. |
| A) | True |
| B) | False |
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| 11 | Interest rate decisions of the ECB are made on the basis of qualified majority voting. |
| A) | True |
| B) | False |
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| 12 | The Taylor rule states that the following variables affect the interest rate position:
i) the deviation of inflation from its (implicit or explicit) target
ii) the money growth
iii) the output gap, which is the difference between actual and potential GDP, measured as a percentage of potential GDP
iv) the velocity of money |
| A) | i) and ii) |
| B) | i), iii and iv) |
| C) | i) and iii). |
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| 13 | Within the Monetary union, there can only be a single short-term interest rate but long-term interest rates can differ from 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. |
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| 14 | 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) | All of the above |
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| 15 | The Balassa-Samuelson principle predicts that: |
| A) | Inflation will always exceed the 2 per cent level chosen 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. |
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| 16 | 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 |
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| 17 | The Maastricht Treaty specifies that the ECB's prime goal is to maintain price stability and the ECB clarified this by saying it means to keep inflation in the range of 3 per cent to 1 per cent over a 5 year horizon. |
| A) | True |
| B) | False |
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| 18 | The HICP stands for Harmonized Index of Consumer Prices. |
| A) | True |
| B) | False |
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| 19 | The European Central Bank is one of the most politically independent central banks in the world. |
| A) | True |
| B) | False |
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| 20 | The effectiveness of the European Central Banks policies depends crucially on its:
i) Transparency
ii) Solidity
iii) Conservativenes
iv) Independence |
| A) | i, ii and iv |
| B) | i, iii and iv |
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| 21 | The EU Parliament oversees the operation of the European Central Bank. |
| A) | True |
| B) | False |