Amongst the following benefits of joining the EMU, which one aim at boosting trade within the union?
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Alternative to fixed exchange rates
Greater transparency
Lower inflation level and variability for periphery countries
Reduction of transactions costs
Reduction of exchange rates uncertainty
Elimination of large exchange rates depreciation
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The costs of joining a common currency area...
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Having a common currency
Having a common monetary policy
Assymetric shocks
Divergence
Price and wage stickiness
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The costs of joining a common currency area...
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Having a common currency
Having a common monetary policy
Assymetric shocks
Divergence
Price and wage stickiness
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Mundell was the first economist to consider the case of asymmetric shocks in currency area in 1961.
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True
False
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A country suffering a negative asymmetric shock inside a currency area cannot use its exchange rate or its monetary policy to accommodate the demand shock and the common monetary policy cannot accommodate this kind of shocks. Hence adjustment has to go through:
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Capital mobility
Price and wage flexibility
Structural reforms
Labour mobility
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After a negative demand shock, price and wage should decrease so as to make the country more competitive and thus stimulate demand.
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True
False
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What is the main risk in case investors fear default in one country of the EMU?
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Dragging down other countries of the union
Creating a liquidity crisis
Having inappropriate monetary policy for all members
Fostering cyclical divergence
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By entering a monetary union, member countries become more vulnerable to movements of distrust by investors.
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True
False
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A schematic assessment of the current EMU as an OCA, considering additional criteria presented by economists other than Mundell:
The EMU is quite good in terms of [blank_start]economic openness/trade integration[blank_end] (McKinnon 1963) and [blank_start]diversification production/consumption[blank_end] (Kenen 1969).
Although it is a condition to enter the EMU, it is lacking [blank_start]similarities of inflation rates[blank_end] (Fleming 1971) and requires further [blank_start]financial market integration[blank_end] (Ingram 1962) which did not work as expected.
Finally it is hindered by a very low level of [blank_start]political integration[blank_end] (Mintz 1970) and [blank_start]compatibility in preferences[blank_end] (Tower and Willet 1976) as well as a [blank_start]non-existent fiscal integration[blank_end] (Kenen 1969).