European Union TestEuropean Union Test

This test consists of 10 questions This test consists of 10 questions designed to test your designed to test your understanding of the EU, the single understanding of the EU, the single market and the Euro.market and the Euro.

The links provide you with a choice The links provide you with a choice of answer, along with explanations of answer, along with explanations and solutions.and solutions.

Question 1.Question 1.

The single market will,The single market will,

a. remove tariff barriersa. remove tariff barriers

b. remove transaction costsb. remove transaction costs

c. enlarge the size of the community.c. enlarge the size of the community.

Your answer is correct.

This is an advantage of the single currency. Try again.

Not a specific aim of the single market. Try again.

Question 2.Question 2.

Which of the following could be a Which of the following could be a disadvantage of the single market for UK disadvantage of the single market for UK firms?firms?

A. Higher average costsA. Higher average costs

B. Increased wage pressuresB. Increased wage pressures

C. Increased competition.C. Increased competition.

Unlikely. The single market will probably increase economies of scale. Try again.

Unlikely. The single market will increase mobility of labour, therefore reducing wage pressure. Try gain

Correct. There is a danger of increased competitionas more firms enter each national market.

Question 3.Question 3.

Which of the following is an advantage of the Which of the following is an advantage of the single currency?single currency?

A. transaction costs will have to be paidA. transaction costs will have to be paid

B. lower interest ratesB. lower interest rates

C. greater regional control over monetary C. greater regional control over monetary policypolicy

Transaction costs on exchange of currency willdisappear. Try again.

Correct. UK interest rates will probably fall. The level of interest rates set by the European Central Bank has beenaround 3% lower than UK rates.

No. Monetary policy will now be Europe wide,controlled by the European Central Bank. Try again.

Question 4.Question 4.

One disadvantage of the single currency is?One disadvantage of the single currency is?

A. interest rates will always stay the same.A. interest rates will always stay the same.

B. taxation levels will fallB. taxation levels will fall

C. recessions could be less manageable.C. recessions could be less manageable.

No. The Central European Bank will set and alter interest rates. Try again

Taxation levels are not a part of thesingle currency agreement.

Correct. With one monetary policy for allof Europe, then national economic problems willbe less manageable on an individual country basis.

Question 5.Question 5.

Which of the following defines Convergence Which of the following defines Convergence Criteria?Criteria?

A. The attempt to allow more decisions to be A. The attempt to allow more decisions to be made on a national basis.made on a national basis.

B. Economic performance standards by which B. Economic performance standards by which entry to the single currency was judged .entry to the single currency was judged .

Wrong. Convergence criteria areeconomic performance standards by which entry to the single currency was judged

Correct. Convergence is measured on the basisof a number of Macro economic indicators. These include interest rates, national debt, and PSBR.

Question 6.Question 6.

Labour market mobility inside the single Labour market mobility inside the single market is necessary to?market is necessary to?

A. reduce regional unemploymentA. reduce regional unemployment

B. increase value of the EuroB. increase value of the Euro

C. lessen deflationary pressureC. lessen deflationary pressure

Correct. Labour should move from areas ofhigh unemployment to where the jobs are.

This is at best a possible side effect of labour mobility.Try again

Reverse is true. It should lesseninflationary pressurein areas which are booming.

Question 7.Question 7.

The European central bank’s management of The European central bank’s management of interest rates will reduce the likelihood of interest rates will reduce the likelihood of national recessions?national recessions?

A. TrueA. True

B. False.B. False.

No more ( or likely to be less ) true thannational banks management of monetary policy.

True. Unless of course the ECB’s economists are somewhat better than our own!

Question 8.Question 8.

Within the EURO, exchange rates are?Within the EURO, exchange rates are?

A. semi fixedA. semi fixed

B. fixedB. fixed

C. floatingC. floating

Under the ERM exchange rateswere semi fixed. Try again

Correct. Within the Euro, exchange rates are irrevocable fixed.

No, floating exchange rates are not part ofThe Euro. Try again

Question 9.Question 9.The Euro is made up of a weighted basket of The Euro is made up of a weighted basket of

currencies. This means that?currencies. This means that?

A. the Euro is the DM ( German currency).A. the Euro is the DM ( German currency).

B. the Euro has a fixed relationship to the $B. the Euro has a fixed relationship to the $

C. the Euro is made up of other currencies, the C. the Euro is made up of other currencies, the proportions according to the strength of their proportions according to the strength of their economies.economies.

No, but don’t they wish!

No. The Euro floats against the dollar, and all other currencies

Correct. Though there was some politicalinfluence on the relative weighting of the currencies.

Question 10.Question 10.

The single market is?The single market is?

A. fully in placeA. fully in place

B. dependent upon WTOB. dependent upon WTO

C. is being held up by national interestsC. is being held up by national interests

No. There is not yet a free marketin all goods and services.

No. The World Trade Organisation affects our tradingrelationships with non single market countries

Correct. National interest still has a large amountof influence over markets such as financial servicesand air transport, ensuring that foreign companiesdo not have free access to these markets.

You have now completed the test. For further more detailed revision please use the case studies on

the ALoA web site. www.aloa.co.uk