Which of the following is NOT a characteristic that reduces the cost of adopting a single currency?
Correct answerA. A high degree of trade integration among the countries of the common currency area
Explanation
Labour and capital mobility help economies adjust to shocks without exchange rate changes, so they cut the costs of a single currency; trade integration mainly raises its benefits instead.
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