A Short History of the European Monetary System

The first stage was a system of exchange rate 1)_______ called the Snake. This began operating in 1972. Movement of member countries was 2)_______ to a band of +/- 2.25 per cent. The Snake was allowed to move within a band of 4.5 per cent against the US dollar. Under this system a country with a 3)_______ currency was forced to 4)_______ and support it. The Snake system had a very short life because of pressure resulting from the oil crisis. Its 5)_______ was mainly due to lack of political commitment.

In 1979 the European Monetary System began operating. In some ways the EMS is an 6)_______ to monetary union. The EMS comprises three elements: the European Currency Unit (ECU), the Exchange Rate Mechanism and the financial support mechanism.

As the ECU is a 7)_______ currency it is perceived as having less 8)_______.The weightings of individual currencies are 9)_______ every five years, or sooner should the need arise. These 10)_______ are 11)_______ according to size of country, relative size of Gross Domestic Product and relative share of total European Union trade.

The ECU is gradually becoming more widely used for European Union debt issues, 12)_______ banking purposes and international transactions.

 

 

Exercise 11. Summary: General Economics knowledge quiz

1. The word “economy” comes from the Greek word oikonomos, which means

a. environment c. one who manages a household

b. production d. one who makes decisions

2. Economics is the study of

a. production technology

b. consumption decisions

c. how society decides what, how, and for whom to produce

d. the best way to run society

3. Microeconomics is concerned with

a. the economy as a whole

b. the electronics industry

c. the study of individual economic behaviour

d. the interactions within the entire economy

4. Macroeconomics is the study of

a. individual building blocks in the economy

b. the relationship between different sectors of the economy

c. household purchase decisions

d. the economy as a whole

5. The key issues of macroeconomics are

a. unemployment c. economic growth

b. inflation d. all issues in a, b and c

6. Goods or services that are necessary for living such as food, clothing, shelter are

a. consumption c. wants

b. needs d. interests

7. Goods and services that are not necessary for living such as toys, games, entertainment are

a. enjoyment c. wants

b. needs d. interests

8. Anything anyone wants or needs is

a. market c. goods

b. economy d. activity

9. Items such as food and clothing, that satisfy human wants or needs are

a. producer goods c. capital goods

b. consumer goods d. necessary goods

10. The performance of any duties or work for another; helpful or professional activity is

a. marketing c. services

b. goods d. labour

11. A market can accurately be described as

a. a place to buy things

b. a place to sell things

c. the process by which prices adjust to reconcile the allocation of resources

d. a place where buyers and sellers meet to buy and sell products

12. When we know the quantity of a product that buyers wish to purchase at each possible price, we know

a. demand c. excess demand

b. supply d. excess supply

13. This refers to how many of a certain good or service are available for people to purchase.

a. demand c. price

b. supply d. stock

14. Usually as prices rise, the supply or amount of a product increases and as prices fall, the supply decreases as more people can afford the product.

a. true

b. false

15. When a market is in equilibrium

a. quantity demanded equals quantity supplied

b. excess demand and excess supply are zero

c. the market is cleared by the equilibrium price

d. all of the above

16. If demand is _______ then price cuts will _______ spending.

a. inelastic, increase c. elastic, decrease

b. elastic, increase d. none of the a, b, or c

17. Economics assumes that people consume goods and services to achieve

a. status c. utility

b. prestige d. self-esteem

18. The extra utility from consuming one more unit of a good is called

a. surplus utility c. bonus utility

b. additional utility d. marginal utility

19. Firms are assumed to _______ costs and to _______ profits.

a. incur, desire c. minimize, maximize

b. charge, earn d. pay, make

20. Comparing a monopoly and a competitive firm, the monopolist will

a. produce less at a lower price c. produce less at a higher price

b. produce more at a lower price d. produce less at a lower price

21. When a market is contestable, incumbent firms must _______ to avoid the entry of new competitors

a. behave like competitive firms c. differentiate their products

b. agree to act together d. practise price discrimination

22. In a strict sense, which answer choices below represent the three factors of production? Choose all that apply.

a. capital c. food

b. labour d. land

23. The effort that a person devotes to a task for which that person is paid is called

a. work c. labour

b. job d. activity

24. A command economy decides resource allocation by

a. referendum c. government planning

b. entrepreneurs decisions d. competition between companies

25. In a free market

a. governments intervene

b. governments plan production

c. governments interfere

d. prices adjust to reconcile scarcity and desires

26. In a market economy, economic activity is guided by

a. the government c. central planners

b. corporations d. self-interest and prices

27. In the mixed economy

a. economic problems are solved by the government and market

b. economic decisions are made by the private sector and free market

c. economic allocation is achieved by the invisible hand

d. economic questions are solved by government departments

28. Money has 3 main functions, they are, _______, _______ and __________.

a. IOU, inflation hedge, store of value

b. Medium of exchange, inflation hedge, store of value

c. Medium of exchange, unit of account, IOU

d. Medium of exchange, unit of account, store of value

29. The business dealing with money and credit is

a. stock exchange c. banking

b. financing d. funding

30. The primary function of a bank is to

a. control the money supply c. provide notes and coins for trade

b. make a profit d. provide a cheque clearing system

31. Banks create money by

a. printing it c. accepting cheques

b. issuing debit cards d. lending out part of their deposits

32. The amount of money a bank charges for the privilege of allowing a person to borrow money or the amount of money the bank pays a person for depositing his money for the bank to invest is called

a. commercial c. loan

b. interest d. deposit

33. The money that a person places in a bank account for the bank to use to invest and that also earns interest is called a

a. investment c. loan

b. mortgage d. deposit

34. How do banks and other financial institutions encourage savings and investing?

a. They portray their bank as a safe place.

b. They give small presents to customers.

c. They pay interest on deposits.

d. They issue colourful cards.

35. What must the government do to reduce high inflation?

a. Increase both spending and the money supply.

b. Decrease both spending and the money supply.

c. Decrease spending and increase the money supply.

d. Increase spending and decrease the money supply.

36. For most people, the largest proportion of their personal income comes from

a. rent paid to them on their property

b. interest on stocks and bonds

c. wages and salaries from their jobs

d. the federal and state governments

37. When deciding which of two items to purchase, you should always

a. choose after comparing costs and benefits of both items

b. choose the item that costs less

c. choose the item with the greatest benefits

d. choose the item that you want

38. Which of the following would most likely accelerate innovation in the computer industry?

a. Taxing all new inventions in the industry.

b. Investing more into research and development.

c. Increased government regulation of the industry.

d. Greater use of PCs by individuals.

39. Which of the following are most likely to be helped by inflation?

a. People living on fixed incomes

b. Banks that loaned money at a fixed interest rate

c. People who borrowed money at fixed interest rates

d. Businesses

40. Assume that one US Dollar is the same as 10 Japanese Yen. If the Dollar becomes worth 15 Yen, which of the following occurs?

a. The price of all Japanese goods increases.

b. Japan will import more goods into the US.

c. Americans in Japan will see that their dollar will buy more goods and services.

d. America will increase its exports to Japan.

41. If your city sets a maximum amount that landlords can charge for rent, what is the most likely result?

a. Available apartments will equal the number of people who want to rent them.

b. There will be fewer apartments than people who want to rent them.

c. There will be more apartments than people who want to rent them.

d. No change.

42. Which of the following methods for reducing pollution would most economists support?

a. Increased regulation on polluting companies.

b. Eliminating all air pollution.

c. Reducing air pollution until the cost of further reductions outweighs the benefits.

d. Government sponsored "green" automobiles.

43. If the United States stopped importing cars from Japan, who would most likely benefit?

a. Japanese automakers

b. American automakers

c. American consumers

d. Japanese consumers

44. The manufacturers of Ford automobiles have their plants running night and day. They are not able to manufacture enough cars to satisfy demand. If Ford cannot increase production and demand continues to rise, the price of Ford cars will:

a. increase

b. decrease

c. stay the same

d. decrease dramatically

45. If interest rates charged by banks decreased, business would be most likely to:

a. increase their prices

b. decrease the number of employees

c. see an increase in their stock prices

d. increase investment spending

 

 

Part 3

Supplementary Texts

 

1. MARKETS

 

A market is a set of transactions in which a particular kind of commodity is exchanged, and in which the transactions for this commodity among different individuals and firms are related.

There are markets for hundreds of thousands of things. Some of these things are tangible and satisfy individual desires, while others are intangible but also important in satisfying individual interests. These things are frequently referred to as products. Frequently, product markets are divided into two classes: goods and services. For example, a hamburger is a good, while a doctor's examination is a service. When you buy an automobile, you are purchasing a good. When you have someone adjust a carburettor, however, you are purchasing a service.

A good is something tangible that is produced, and consumed, often having been purchased in a market. A service is something intangible that is produced and consumed, also frequently having been purchased in a market.

Resources are things used to produce goods, services and capital. Some people come to a market because they want to buy (demanders), others come because they want to sell (suppliers). The interaction of demanders and suppliers determines a market price and a market allocation of a particular commodity. This interaction also creates a set of incentives for subsequent decisions by both suppliers and demanders that may affect many markets. To understand these incentives, as well as how market prices and allocations are determined, we need to understand how suppliers and demanders respond to different relative price and the quantity of a particular commodity that individuals or firms (suppliers) would be willing to provide to the market.

Demand is all combinations of relative price and the quantity of a particular commodity that individuals or firms (demanders) would be willing to purchase in a market.

A market is created when those who willingly supply a good, service, or resource exchange with those who desire to use, control, or consume a good, service, or resource.

Markets reallocate commodities from suppliers to demanders. What if suppliers want to provide more than demanders want to purchase? Or, what if demanders want more than suppliers are willing to provide?

Excess supply occurs when, at a particular market price, the quantity that suppliers want to provide to the market exceeds the quantity that demanders want to purchase.

Excess demand occurs when, at a particular market price, the quantity that suppliers want to provide to the market is less than the quantity that demanders want to purchase.

In an open or free market, the relative price for a commodity will generally decrease when there is excess supply; the relative price will generally increase when there is excess demand.

Excess demand will be eliminated if the relative price is free to increase.

Markets adjust in predictable ways if, when there is excess demand, the relative price increases and if, when there is excesssupply, the relative price decreases. These changes in relative prices tend to eliminate the excess supply or excess demand.

A market is equilibrium when the quantity that suppliers are willing to provide to the market at a specific market price is exactly equal to the quantity that demanders desire to purchase in the market at the same market price.

The importance of equilibrium is that the equilibrium relative price is the only price at which the interests of demanders happen to coincide precisely with the interests of the suppliers. At any other relative price, the interests of suppliers and demanders do not coincide.

Exercise 1. Match the words on the left with the translation on the right.

 

1. tangible a. споживач

2. satisfy desires b. впливати на ринок

3. intangible c. місце на ринку

4. demander d. збігатися

5. market allocation e. невідчутний (на дотик); невловимий, неясний

6. affect the market f. відрегулювати

7. excess supply g. задовольняти потреби

8. decline h. рівновага

9. equilibrium i. відчутний (на дотик), матеріальний

10. eliminate j. знижуватися, зменшуватися

11. adjust k. ліквідувати, знищувати

12. coincide l. перевищення пропозиції