B21

Question 1

Why did europe adopt the euro

Answer 1

to enhande europes role in the world moetary system and to reduce barriers of trade

Question 2

What was the EMS

Answer 2

The precurser to the euro, a system in which european currencies were supposed to be linked but allowed to varry to a degree

Question 3

What are optimum currency areas

Answer 3

Areas closely integrated through trade and factor movement, the best places for a common currency as costs of trade are deuced

Question 4

What are the costs of a common currency

Answer 4

A loss of monetary power

Question 5

Does increased economic integration with the currency area reduce the need for monetary power

Answer 5

Yes as factors can move to stabelize the situation such as people moving from an area of unemployment to a more booming area

Question 6

What is fiscal federalism

Answer 6

When purchasing power is transferred to areas that struggle through taxation of those that dont

Question 7

What is a doom loop in government finance

Answer 7

When a country is in trouble and does not controls its own currency rates become higher which makes default more likely which increases rates

Question 8

Why is europe not yet an optimal currency area

Answer 8

They trade to little with each other and have too little fiscal federalism

Question 9

Explain the euro zone crisis

Answer 9

Greek default on debt trigger worries on over leveraged banks around europe triggering a doom loop