If two countries A and B are member of a currency union and there is a shift in consumer preferences away from the goods of country A and towards those of country B than which one of the following would help to offset the effect of the resulting changes in aggregate demand in A and B on inflation and unemployment in the tow countries ?
Correct answer: A. A high degree of labour mobility between the tow countries
- A. A high degree of labour mobility between the tow countries
- B. An increase in government spending in country (A)
- C. A depreciation in the foreign exchange value of the common currency
- D. A low degree of capital mobility between the two countries
Explanation
When demand shifts from country A to B, workers can move from A to B, reducing unemployment in A and preventing excessive wage and price pressure in B. This labour mobility substitutes for the exchange-rate adjustment unavailable inside a currency union.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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