"The costs and benefits for a country from joining a fixed-exchange rate area such as the EMS depend on how well-integrated its economy is with those of its potential partners." Discuss
What will be an ideal response?
We will expand on this idea, which is roughly the theory of an optimum currency area as developed by Mundell. A major economic benefit of fixed exchange rates is that they simplify economic calculations and provide a more predictable basis for decisions that involve international transactions than do floating rates. This gain in monetary efficiency would be even higher if the factors of production could migrate freely. The costs of joining a fixed-exchange rate area is that a country gives up the ability to use the exchange rate and monetary policy to stabilize the domestic economy. So, if a country has a well-integrated economy with those in the fixed-exchange rate area, then the benefits would likely outweigh the costs.
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In the monetarist view, a bond-financed increase in government spending would have a strong effect on real output in
a. both the short run and the long run. b. the short run but not the long run. c. the long run but not the short run. d. neither the short run nor the long run.
When firms price discriminate they
A) sell to new consumers who would not have bought at the profit-maximizing uniform price but lose sales to existing consumers because of the higher prices. B) sell to new consumers that would not have bought at the profit-maximizing uniform price. C) lose surplus from consumers who would have bought at the profit-maximizing uniform price. D) None of the above.
An allocation satisfies the output efficiency condition if:
A. for every pair of goods, every input's marginal product equals the marginal rate of transformation. B. for every pair of goods, every consumer's marginal rate of substitution equals the marginal rate of transformation. C. only applies for firms that produce the same product. D. only applies for consumers that consume the same goods.
Suppose that there are three variables involved in the graph to the? right: (1)? quantity, (2)? price, and? (3) a third variable. Which of those variables causes the quantity to change from point C to point D in the? graph?