I. True/False/Uncertain - Briefly explain. No credit without an explanation (5 marks each). (The course is about Monetary and Fiscal Unions, having in mind the European Union as the center).

Labour mobility and wage/price flexibility are needed for adjustment to temporary shocks in a mone- tary union.

The larger the internal sovereign debt, the more likely a sovereign default in a monetary union.

The Lender of Last Resort (LOLR) function of the central bank poses a moral hazard risk.

Internal devaluation (i.e. lower wages/prices) is an alternative adjustment mechanism to an exchange rate devaluation.

The European Central Bank (ECB) can achieve both stable inflation and financial stability.

ECB should be less independent and more accountable to achieve its mission.

Countries can run primary fiscal deficits while maintaining constant debt-to-GDP ratios.

Integrated financial markets function as insurance against symmetric, systemic shocks.