Which of the following is a problem for monetary policy in a currency union ?
Correct answer: D. The interest rate may be higher than is appropriate for economic conditions in some countries while it's lower than is appropriate in some others monetary policy must be one size fits all
- A. Money supply is more difficult to control in a currency union.
- B. The inflation-unemployment trade-off is more unstable in a currency union
- C. All of these answers describe problems for monetary policy in a currency union
- D. The interest rate may be higher than is appropriate for economic conditions in some countries while it's lower than is appropriate in some others monetary policy must be one size fits all
Explanation
A common monetary policy cannot suit every member of a currency union because countries may face different economic conditions, making the shared interest rate too high for some and too low for others. This is the one-size-fits-all problem.
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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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