# Facoltà-di-Economia-Richard-Goodwin

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```					                           Facoltà di Economia Richard Goodwin
Università degli Studi di Siena

LINGUA INGLESE – Corso Avanzato
Test di Entrata
Prof.ssa Tognini Bonelli
3 ottobre 2005

NOME
COGNOME
MATRICOLA

Read the article “The real picture” (The Economist, February 17th 2005) and
answer the following questions OR circle the right answer if more than one is
given.
Paragraph 1.

Consider these statements and circle the right answer as T/F for True or False:

a) Among the 12 members of the euro area:
 Nominal exchange rates have tended to be rather unpredictable T        F
 Real exchange rates have been subject to fluctuation          T        F

b) Rephrase the statement “Italy’s real exchange rate has appreciated by more than 20%
relative to Germany’s”. Start your sentence with:

Germany’s exchange rate …………………………………….…
by more than 20% relative to Italy’s.

Paragraph 2.

a) In the example given here what would be America’s drop in “nominal exchange rate”?
And what the drop in the “real” one?

   …………………………………………….…
   ……………………………………………..…

b) As a conclusion to paragraph 2, which statement would you chose as appropriate?

   Italy’s real exchange rate is going to rise against the one of its neighbours.
   Real exchange rates may vary significantly even though nominal exchange rates are
fixed.
   If the nominal rate is fixed the exchange rate measured in common currency is
bound to fall.
Paragraph 3

a) Explain in what way are real exchange rates “trade-weighed”

……………………………………………………………………………………..………..
……………………………………………………………………………………..………..
……………………………………………………………………………………..………..
……………………………………………………………………………………..………..

b) Consider the first two of the indices adopted by the EC and state in your own

     ……………………………………………………………………………………….
……..…………………………………………………………………………………
………..………………………………………………………………………………
…………..……………………………………………………………………………

     ……………………………………………………………………………………….
……..…………………………………………………………………………………
………..………………………………………………………………………………
…………..……………………………………………………………………………

Paragraph 4.

a) Consider the index related to labour costs. Why can it not ultimately be considered
very reliable?

……………………………………………………………………………………………..…..
………………………………………………………………………………………..………..
……………………………………………………………………………………..…………..
……………………………………………………………………………………..…………..

Paragraph 5.

a) Identify 4 verb forms which share the meaning of “aumentare”:

   .……………………………
   ……………………………
   ……………………………
   ……………………………
b) Consider the sentence “German firms have struggled to regain ..”. The meaning of
“struggle” in this context is:

     Attempt with difficulty
     Continue doing
     Succeed in doing
     Fight against

c) Consider these statements and circle the right answer as T/F for True or False:

 Wages in Germany have undergone an increase following the
re-unification.                                                       T   F
 The increase in labour costs in Germany was followed, more
recently, by an attempt to control wages and improve productivity.    T   F
 During the last five years Germany has seen a slump in labour
productivity compared with the euro-area average.                     T   F
 The acceptance of longer hours and of reductions in pay
induced the fear that larger companies would relocate to
cheaper areas.                                                        T   F

Paragraph 6.

a) Consider this statement and mark the options as T/F:

The consequences of a policy aimed to reduce market rigidities have brought
 A rise in unemployment                                         T F
 A surge in consumer spending                                   T F
 An slump in domestic demand which cancelled out any            T F
export growth

Paragraph 7.

a) What is the reason why different economies in the euro-zone diverge in their real
exchange rates as against the rest of the world? Explain in your own words.

……………………………………………………………………………………………..…..
………………………………………………………………………………………..………..
……………………………………………………………………………………..…………..
……………………………………………………………………………………..…………..
Paragraph 8.

a) Which of the following statements are true? Circle T or F.

    A real trade-weighted exchange rate is measured on a commercial
basis and adjusted for relative unit labour costs                    T   F

    The euro’s trade-weighted exchange rate as against the dollar has
been very considerable                                               T   F

    Germany’s real effective exchange rate is in line with the overall
patterns exhibited by the euro.                                      T   F

Paragraph 9.

a) The meaning of “odd” is:

   unfair
   strange
   affordable

b) Consider these statements and circle T or F for True and False:

   Trade weights used to measure the performance of the euro
against other currencies do not consider the balance of trade
in the euro zone                                                          T   F
   Unless the comparison with trade in the euro zone is counted
in, trade-weighted exchange rate measurements are going to
be unreliable                                                             T   F

Paragraph 10.

b) Consider these statements and mark the options as T/F:

   In spite of the euro’s increase against the dollar, exports of goods
and services in Germany are in very good shape                            T   F
   Germany is still uncompetitive because of its high wage costs             T   F
   However healthy the German economic situation may seem,
it will take a while before the advantages affect household incomes
and spending.                                                             T   F
Economics focus
The real picture
Feb 17th 2005
From The Economist print edition

The euro area may have a single currency, but it still has many different real
exchange rates

1. HAVE the exchange rates between the 12 members of the euro area been permanently
fixed? If you think so, you are wrong. Although their nominal exchange rates have been set
in stone, their real exchange rates—ie, adjusted for differences in their rates of inflation—
have shifted significantly. Since 1999, when the single currency was launched, Italy's real
exchange rate has appreciated by more than 20% relative to Germany's.
2. Real exchange rates measure international competitiveness, and are therefore more
important than nominal rates in terms of their economic impact. For example, if the dollar
fell by 10% against the euro, but at the same time prices in America rose by 5% more than
those in Europe, the price of American goods relative to European ones measured in a
common currency—the dollar's real exchange rate—would fall by only 5%. Likewise,
within the euro zone, if prices in Italy, say, rise more rapidly than those in other member
countries, then Italy's real exchange rate against its neighbours will rise even though the
nominal rate is fixed.
3. The European Commission calculates on a quarterly basis real effective (ie, trade-weighted)
exchange rates for euro-area economies against other member countries as well as against a
basket of external currencies such as the dollar, the yen and the pound. This requires for
each country an index of inflation relative to that abroad. The tricky part is deciding exactly
which price or cost deflator to use. The commission publishes no fewer than five different
indices, based on consumer prices, the GDP deflator, export prices, unit wage costs in
manufacturing, and unit labour costs across the whole economy. Each measure has its
advantages and disadvantages. For instance, a real exchange rate based on relative export
prices might seem to be the most direct way to capture international competitiveness. But it
might tell only half the story, if firms initially absorb an increase in costs by trimming profit
margins; eventually, export prices will rise. A real exchange rate based on consumer prices
offers the most timely figures, because prices are available monthly, but it may be distorted
by the inclusion of indirect taxes and non-traded goods and services.
4. Most economists reckon that the best measure of underlying international competitiveness is
relative unit labour costs. When the single currency was born, Germany's unit labour costs
were the highest in the euro area; but since 1999 they have fallen by 10% relative to the
average. Put another way, Germany's real exchange rate within the zone has depreciated by
10%. In contrast, relative unit labour costs have risen by 9% in Italy, Spain and the
Netherlands, implying a huge loss of competitiveness relative to Germany (see left-hand
chart). Economists at ABN Amro estimate that Germany's labour costs are now lower than
Italy's. Ireland and Portugal have also lost competitiveness.
5. German labour costs surged in the early 1990s when the reunification boom boosted wages,
labour taxes were increased and the D -mark rose against other European currencies. But
more recently, German firms have struggled to regain their competitiveness by clamping
down on wages and boosting productivity. In the past five years Germany has boasted faster
growth in labour productivity than the euro-area average, combined with the zone's slowest
growth in wages. The threat that firms will move factories to central and eastern Europe has
forced workers at several large companies either to work longer hours without extra pay or
to take a pay cut. The government's reforms will also help to reduce labour-market rigidities,
making it easier for firms to dismiss workers and forcing unemployed workers to seek jobs.
6. In the long run this will help firms to become more competitive and profitable, and so create
more jobs. However, in the short run unemployment has risen, and incomes and consumer
spending have been squeezed. Germany's GDP fell by 0.2% in the fourth quarter as export
growth was more than offset by a fall in domestic demand.

The divergent dozen
7. There has also been a lot of variation in the effective exchange rates of individual euro-zone
economies against the rest of the world. This reflects differences not only in cost inflation,
but also in the geographic patterns of trade. If, for example, a bigger share of a country's
exports go to America, then the dollar will have a bigger weight in that country's currency
8. Since early 2002, when the dollar started its decline, the euro's real trade-weighted exchange
rate has risen by 18% (based on relative unit labour costs), slightly less than the 21% rise in
its nominal trade-weighted value and considerably less than its 50% leap against the dollar.
Yet Germany's real effective exchange rate has risen by only 4% since early 2002, the
smallest increase of any euro-zone country. France's real exchange rate has gone up by 9%,
and those of Italy and Ireland by 17%.
9. It turns out that the real exchange rates of the individual members of the euro area have all
gone up by less than the 18% rise of the euro itself. This might strike you as odd. The
explanation is that the trade weights used to calculate the euro's overall index against other
currencies exclude trade within the euro area, which accounts for around half of most
members' total trade. When calculating national effective exchange rates this trade should
rightly be included, giving a much smaller weight to the declining dollar.
10. Many economists worry that the cheap dollar will crush European business. But the modest
rise in Germany's real trade-weighted exchange rate explains why, despite the euro's surge
against the dollar, German exports have held up so strongly (see right-hand chart). Indeed,
Germany is the only G7 economy to have increased its share of world exports in the past
five years. The popular notion that high wage costs have left Germany uncompetitive no
longer seems to be true. Alas, it could take some time before the gains feed through to
household incomes and spending, and spur the German economy to grow again.

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