Explain the theory of optimum currency areas
What will be an ideal response?
The theory implies that countries will wish to join fixed exchange rate areas closely linked to their own economies through trade and factor mobility. This decision to join is, in turn, determined by the difference between the monetary efficiency gain from joining and the economic stability loss from joining. These factors are both related to the degree of economic integration between the joining country and the larger fixed exchange rate zone. Only when economic integration passes a critical level is it beneficial to join.
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Can you think of any reasons why there was no real worry about monopoly power?
A key tool of countercyclical fiscal policy is
a. the interest rate b. the federal funds rate c. government spending d. the regulatory code e. Presidential executive orders
A 10 percent increase in the price of butter reduces butter consumption by about 5 percent. The increase causes households to
a. spend more on butter. b. spend less on butter. c. spend the same amount on butter. d. consume more goods like bread that are complements of butter.
What is meant by the guiding function of prices?
Please provide the best answer for the statement.