Question

In: Economics

[4 pts] Consider two countries, Greece and Germany, that have joined a monetary union and suppose...

[4 pts] Consider two countries, Greece and Germany, that have joined a monetary union and suppose Greece is prone to sudden changes in the demand for their exports. What does this look like in the GG-LL graph and how does it affect their membership in the union?

Solutions

Expert Solution

GG curve present the monetary efficiency gain . This gain takes from the ease of which independent's and business’s can make deals as they now share a currency. They no longer face the unpredictability of exchange rate fluctuations, calculations and transaction expenses. This curve has a specific slope as the efficiency rise from joining a currency union will increase as the country’s economic integration with the area rises.
The LL curve represents the economic stability loss, which is also connected to the degree of economic integration between the joiner and the area. The main regions of loss for the joiner is the capability to control it’s exchange rate and monetary policy decisions. This is explained in the scenario where the joiner suffers an asymmetric shock in the currency union.
So there are two countries, Greece and Germany, that have joined a monetary union and suppose Greece is prone to sudden changes in the demand for their exports. LL curve shifts to the shifts to left side and Germany will face the loss and he might be left the membership.


Related Solutions

Situation: Suppose there are two countries, Germany and India, and two goods, bicycles and textiles. Germany...
Situation: Suppose there are two countries, Germany and India, and two goods, bicycles and textiles. Germany has a resource endowment of 42,444,325 units of labor and 8,873,941 million units of capital, while India has a resource endowment of 475,090,729 units of labor and 10,299,894 million units of capital. Each bicycle requires 100 units of capital and 10 units of labor to produce, and each unit of textiles requires 40 units of capital and 2 units of labor to produce. Question:...
Situation: Suppose there are two countries, Germany and India, and two goods, bicycles and textiles. Germany...
Situation: Suppose there are two countries, Germany and India, and two goods, bicycles and textiles. Germany has a resource endowment of 42,444,325 units of labor and 8,873,941 million units of capital, while India has a resource endowment of 475,090,729 units of labor and 10,299,894 million units of capital. Each bicycle requires 100 units of capital and 10 units of labor to produce, and each unit of textiles requires 40 units of capital and 2 units of labor to produce. Question:...
Suppose there are just two countries, the US and Germany. Consider the following: US Current Account...
Suppose there are just two countries, the US and Germany. Consider the following: US Current Account balance (BCA): -$400 US Financial Account balance (BKA): +$315 The balance on the US Reserve Account is +$85, and it means that US holdings of foreign currency denominated assets decreased The balance on the US Reserve Account is +$85, and it means that US holdings of foreign currency denominated assets increased The balance on the US Reserve Account is -$85, and it means that...
Question : Consider the following: A number of countries, like Greece and the United Kingdom, have...
Question : Consider the following: A number of countries, like Greece and the United Kingdom, have in the past few years responded to growing and problematic levels of debt by introducing “austerity” policies: significant cuts to government purchases (G) combined with significant tax (T) increases. These policies have been controversial among both economists and the public. (a) Using the AS/AD model, what is the short-run effect of the austerity policy on prices and output? (b) What is the short-run effect...
1. An advantage of the European Monetary Union (Eurozone) is that its member countries have common...
1. An advantage of the European Monetary Union (Eurozone) is that its member countries have common fiscal policies. a. True b. False 1b. As new regional trading arrangements are formed, the opportunity cost of remaining outside a. decreases. b. either increases or decreases. c. increases. d. neither increases nor decreases. 1c. A free trade area is like a customs union EXCEPT its members adopt a common external tariff structure. a. True b. False 1d. World welfare under a customs union...
Consider the following information on factor endowments for the two countries of Spain and Germany. Factor...
Consider the following information on factor endowments for the two countries of Spain and Germany. Factor Endowmetns USA China Labor Force 30 million 15 million Capital Stock 200,000 machines 400,000 machines 1)  If these two countries agrees to trade, what kind of restructuring would the countries face? 2) Would there be complete specialization in each country? 3) Would capital and labor remain fully employed in both the countries with persisting trade? Why or why not? 4) How would income distribution for...
EXERCISE 18.5 COMPARATIVE ADVANTAGE Suppose that there are only two countries in the world, Germany and...
EXERCISE 18.5 COMPARATIVE ADVANTAGE Suppose that there are only two countries in the world, Germany and Turkey, each with four workers. Within a given time period, each worker in Germany can produce three cars or two televisions, and each worker in Turkey can produce two cars or three televisions. Draw the feasible production frontier for each country, with televisions on the horizontal axis and cars on the vertical axis. In the absence of trade, what is the relative price of...
5. Consider two countries: Poland (whose currency is the zloty) and Germany      (whose currency is...
5. Consider two countries: Poland (whose currency is the zloty) and Germany      (whose currency is the euro). Shown below are average annual rates of inflation      expected over the next twenty years. The numbers in the table are filled in for      Germany. Make up numbers for Poland that are consistent with two conditions:      (1) that productivity growth in Poland’s traded sector will be sufficiently rapid to      bring about a fall in the relative price of traded...
My countries are Greece and Russia. For these two assigned countries, write a professional report that...
My countries are Greece and Russia. For these two assigned countries, write a professional report that compares and contrasts their trade patterns.
Consider two countries, Germany and Italy, which produce two goods, beer and cheese. The labour requirements...
Consider two countries, Germany and Italy, which produce two goods, beer and cheese. The labour requirements (in hours) for producing one unit of these goods in each country are: Beer Cheese Germany aLB = 2 aLC = 3 Italy aLB* = 5 aLC* = 4 Which country has the absolute advantage in the production of beer and which in the production of cheese? (Mark: 0.2) Which country has the comparative advantage in the production of beer and which in the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT