Question

1. Read Ch. 13 (sections 13.1 to 13.2). Summarise why “sudden stop” events (such as the 2008 financial crisis and COVID-19 pandemic) can caused persistent high rates of unemployment in countries within a monetary union (use Greece which is a member of the European Union (EU) as an example). Discuss the policy options that Greece could have used to stabilise the unemployment pressure if it were not a member of the EU.

Answer 1

Economic union countries share trade liberalism as well as economic policy sharing with each other countries.

During this tough time Eu policy are same for members countries, while these policy are more in favor of developed economy like Germany , France etc. These policy are more beneficial for deveoped countries.

Covid19 and financial crisis which create recession all over the world .countries which are more economical freedom in each dimension of decision making was more capable of fight with such situation. While Greece was part of EU and not that much economic developed country and have more dependent on economic decision and Policy over EU. Thus it was not take good decision at suitable time.

Financial crisis affected EU countries badly As Greece also party of this ad economic weaker comparatively . So it affected them badly .

When any country who is more economic freedom in decision making and take appropriate decision like monetary policy expansion and fiscal expansionary policy to create demand during such bad situation.during such time country also have to follow protectionist policy such time but when country is less Economic free then decision making regarding these policy are tougher as dependent on other countries.

Protection policy is required to save domestic market from other economic dominate countries. Like India has make fpi rule(protectionist policy) tougher for countries like china which can create economic bubble in the country through increase share through fpi and sell them any time to create unstablitiy in the market.