What problem does monetary policy face in a currency union?
Correct answerC. The interest rate may be higher than is appropriate for economic conditions in some countries while it is lower than is appropriate in others; monetary policy must be one size fits all
Explanation
A currency union has a single central bank and one interest rate, which may be too high for some member economies and too low for others at the same time.
Correct answerB. 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
Correct answerC. 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
Discussion