Monetary Unions Flashcards
1
Q
What is a monetary union?
A
A group of countries that share a common currency (e.g. Euro)
2
Q
What are some advantages of monetary union for eurozone countries?
A
- fixed prices
- reduced exchange rate costs
- greater prices transparency
- more trade and greater economies of scale
- inward investment
- price stability
3
Q
What are some disadvantages of monetary union for eurozone countries?
A
- transition costs
- inability to change value to a country
- structural problems
- break up of the monetary union
4
Q
What is the theory of optimum currency area?
A
A group of countries where efficiency would be maximised by sharing a common currency.
5
Q
What are the conditions necessary for the success of a monetary union?
A
- free movement of labour
- capital mobility associated with wage and price flexibility
- automatic fiscal transfers
- share the same trade cycle
