Start practising
Practice mode Monetary Union

What is meant by fiscal federalism?

Correct answer C. A fiscal system for a group of countries involving a common fiscal budget and a system of taxes and fiscal transfers across countries

Explanation

Fiscal federalism means member states share a central budget, so taxes and transfers automatically move money towards regions hit by downturns, as happens between US states.

Report a problem

Answer checked How we write and check questions

Tip: press A, B, C or D to answer, and N for the next question.

Advertisement

More Monetary Union questions

See all
Question 01 Monetary Union

Countries A and B share a currency. If consumer preferences shift away from A’s goods towards B’s, which of the following would help offset the resulting effects on inflation and unemployment in the two countries?

Correct answer A. A high degree of labour mobility between the two countries

Open question
Question 02 Monetary Union

Why does a high degree of real wage flexibility tend to reduce a country’s cost of joining a currency union?

Correct answer B. Real wages fall rapidly in a recession and the economy moves quickly back to long-run equilibrium, so limiting the duration of the recession even when exchange rate adjustment is not possible

Open question
Advertisement
Question 03 Monetary Union

How does the eurozone compare with the USA as a possible optimal currency area (OCA)?

Correct answer C. The eurozone has a lower degree of labour mobility than the USA and labour law is much more restrictive in the eurozone than in the USA; on these measures the eurozone is less likely to be an OCA than is the USA

Open question

Discussion

Have a question about this answer?

Your email address will not be published. Required fields are marked *

Links and website addresses are not allowed in comments.