Why might a group of countries wish to have a common currency? Explain four reasons
What will be an ideal response?
First, a single currency eliminates the need to convert each other's money and thereby reduces transaction costs. Second, a single currency eliminates price fluctuations caused by changes in the exchange rate. The elimination of misleading price signals that result from exchange rate fluctuations is also a potential gain in efficiency. Third, the elimination of exchange rates through the adoption of a single currency can help increase political trust between countries seeking to increase their integration. Fourth, in some developing countries the adoption of a common currency may give their exchange rate system greater credibility.
You might also like to view...
Crabs caught from an ocean are an example of a _____
a. common resource b. club good c. public good d. private good
Suppose that the following occurred in two countries during the past decade. Country X, real Gross Domestic Product (GDP) rose 40 percent and population rose 50 percent; Country Y, real Gross Domestic Product (GDP) increased 80 percent and population increased 70 percent. Based on this information, which is TRUE?
A. Both countries have experienced growth in per capita real Gross Domestic Product (GDP). B. Chances for an improved standard of living are greater in Country X. C. Only Country Y has experienced growth in its per capita real Gross Domestic Product (GDP). D. Neither country has experienced growth in per capita real Gross Domestic Product (GDP).