Th4.1: ^^^ Monetary Unions

Question 1

What are monetary unions?

Answer 1

two or more countries with a single currency, with an exchange rate that is monitored and controlled by one central bank or several central banks with closely coordinated monetary policy

Question 2

What is an example of a monetary union?

Answer 2

the EU

Question 3

Why are monetary unions good?

Answer 3

since they mean prices are fixed as all currencies are the same and there are reduced exchange rate costs

Question 4

What becomes easier across the union and what does this mean?

Answer 4

for prices to be compared and so MNCs are less able to price discriminate

Question 5

However, what is a problem with starting the new currency?

Answer 5

there are financial costs involved with starting the new currency and there would be costs if the union broke up

Question 6

What else is an issue with monetary unions?

Answer 6

there is a loss of policy interdependence, countries are unable to change the value of their currency and what is good for one country may not be good for another