What are the five criteria for a country to join the European Monetary Union? What is the purpose of the criteria? What are the gains from establishing the monetary union?
What will be an ideal response?
POSSIBLE RESPONSE: The five criteria for a country to join the European Monetary Union are: (1) The country's inflation rate must be no higher than 1.5 percentage points above the average inflation rate of the three European Union (EU) countries with the lowest inflation rates. (2) Its exchange rates must be maintained within the Exchange Rate Mechanism (ERM) bands with no realignments during the preceding two years. (3) Its long-term interest rate on government bonds must be no higher than two percentage points above the average of the comparable interest rates in the three lowest inflation countries. (4) The country's government budget deficit must be no larger than 3 percent of the value of its gross domestic product (GDP). (5) The gross government debt must be no larger than 60 percent of its GDP.
The purpose of setting these criteria is to measure the country's economic convergence performance toward the best-performing EU countries to determine their readiness to enter the monetary union. The gains are the elimination of exchange-rate variability and risk within the union, ending one-way speculation and eliminating foreign exchange transaction costs. All of this will lead to increased trade among the member countries and to greater integration of European product and financial markets.
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Suppose that savers become less willing to purchase medium-quality corporate bonds. The result will be that the prices of medium-quality corporate bonds will
A) fall relative to the price of U.S. Treasury securities, but rise relative to the price of high-quality corporate bonds. B) rise relative to the price of U.S. Treasury securities, but fall relative to the price of high-quality corporate bonds. C) rise relative to the prices of U.S. Treasury securities and high-quality corporate bonds. D) fall relative to the prices of U.S. Treasury securities and high-quality corporate bonds.
What causes structural unemployment?
a. workers searching for suitable jobs and firms looking for suitable workers b. the persistent mismatch of workers’ skills and the requirements of jobs c. short-term cyclical fluctuations in the economy d. short-term seasonal fluctuations in the job market