Common Currency Areas And EMU

Question 1

European economic and monetary union

Answer 1

European currency union that have adapted euro as common currency
Jan 1999- 12 countries
Greece 2001

Question 2

European Union

Answer 2

Family democratic European counties committed to working together for peace and prosperity

Question 3

Single European market

Answer 3

EU-wide market throughout which labour, capital, G+S can move freely

Question 4

Benefits of single currency

Answer 4

Eliminated transaction costs
Fall in price discrimination
Fall in foreign ER variability

Question 5

Cost of single currency

Answer 5

Gives up freedom to set its own monetary policy

Question 6

Is EU an optimum currency area

Answer 6

High degree trade integration
Not plagued by asymmetric demand shocks
Real wage flexibility and labour mobility= low
Retail financial markets are nationally segregated

Question 7

Fiscal federalism

Answer 7

Fiscal system for group of countries involving a common fiscal budget and system of taxes and fiscal transfers across countries

Question 8

Common currency area

Answer 8

Area throughout which single currency circulates as medium of exchange