Explain Mundell's four conditions for adopting a single currency
What will be an ideal response?
The first condition is that the business cycle must be synchronized and national economies must enter recessions and expansions at more or less the same time, which makes similar monetary policies desirable. The second condition is a high degree of labor and capital mobility between the member countries. This allows workers and capital to leave countries or regions where work is scarce and to join the supply of labor and capital in booming regions. The third condition is that there are regional policies capable of addressing the imbalances that may develop. Depressed areas may remain depressed if people cannot move or choose not to move because the psychological or other costs are too high or resources outside the region are not available. The fourth condition is that the nations involved must be seeking a level of integration that goes beyond simple free trade.
You might also like to view...
In a certain economy, the components of aggregate spending are given by:C = 60 + 0.6(Y - T) - 1,000rI = 200 - 1,000rG = 200NX = 50T = 100Given the information about the economy above, what is the short-run equilibrium output if the real interest rate is 6 percent?
A. 825 B. 450 C. 925 D. 330
The recession of 2001 began in ________ and ended in ________
A) March; November B) February; December C) April; October D) February; October
The opportunity cost to society of producing one more unit of the good is
A) average cost. B) marginal cost. C) efficiency costing. D) the optimal cost.
Which of the following statements is true?
a. When long-run average total costs are increasing, the firm enjoys economies of scale. b. Most industries exhibit long-run average costs that are shaped like an upside-down U. c. Constant returns to scale occur when the short-run average-total-cost curve is horizontal. d. When long-run average total costs are increasing, the firm has diseconomies of scale. e. Constant returns to scale are never present in the real world.