Discuss the problems that the EMU will continue to experience in the coming years
What will be an ideal response?
(1 ) Europe is not an optimum currency area; therefore asymmetric economic developments within different countries of the euro zone that call for different interest rates cannot be implements. (2 ) The political part of the unification is much weaker and may limit the political legitimacy of the economic unification. (3 ) On the one hand, labor markets remain highly unionized and subject to high government unemployment taxes and other regulations impeding labor mobility. On the other hand, capital has high incentive to migrate to the EMU countries with the lowest wages. (4 ) Constraints on national fiscal policy are likely to be painful due to the absence of substantial fiscal federalism (fiscal transfer of resources from the rich to the less rich countries within the European Union) within the EU. (5 ) The EU is considering a large-scale expansion of its membership into Eastern Europe and the Mediterranean. This will cause many coordination costs and also the issue of representation of small and big countries.
You might also like to view...
Equilibrium GDP will not exist where output exceeds aggregate demand because businesses will notice that
A. their profits are positive. B. inventory stocks are building up. C. inventory stocks are being depleted. D. their level of depreciation is rising.
Consumption spending is $22 million, planned investment spending is $7 million, actual investment spending is $7 million, government purchases are $9 million, and net export spending is $3 million
Based on this information, which of the following is true? A) Aggregate expenditure is equal to GDP. B) Aggregate expenditure is greater than GDP. C) Aggregate expenditure is less than GDP. D) There was an unplanned change in inventories.
In banking-oriented systems, handling of the manager-stockholder conflict in large firms is through
A) rating agencies. B) the potential for takeovers. C) management ownership of the firm. D) bank ownership of the firm.
Suppose one observes that when the price of peanut butter increases, the demand for jelly increases. One should conclude that:
A. peanut butter and jelly are substitutes. B. peanut butter and jelly are complements. C. peanut butter and jelly are normal goods. D. peanut butter and jelly are inferior goods.