European Union Test

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

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

Question 1.

The single market will,

a. remove tariff barriers

b. remove transaction costs

c. Replace the £ with the €.

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.

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

A. Higher average costs

B. Increased wage pressures

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.

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

A. transaction costs will have to be paid

B. less exchange rate volatility

C. greater regional control over monetary policy

Transaction costs on exchange of currency willdisappear. Try again.

Correct. Exchange rates within the Euro are fixed.

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

Question 4.

One disadvantage of the single currency is?

A. interest rates will always stay the same.

B. taxation levels will fall

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.

Which of the following defines Convergence Criteria?

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

B. Economic performance standards by which 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.

Labour market mobility inside the single market is necessary to?

A. reduce regional unemployment

B. increase value of the Euro

C. 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.

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

A. True

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.

Within the EURO, exchange rates are?

A. semi fixed

B. fixed

C. 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.

The Euro is made up of a weighted basket of currencies. This means that?

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

B. the Euro has a fixed relationship to the $

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

The single market is?

A. fully in place

B. dependent upon WTO

C. 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 always have free access to these markets.

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

the NGFL web site