If Two Countries, a and B, Are Members of a Currency

question 22

Multiple Choice

If two countries, A and B, are members of a currency union and there is a shift in consumer preferences away from the goods of country A and towards those of country B, then which one of the following would help to offset the effect of the resulting changes in aggregate demand in A and B on inflation and unemployment in the two countries?

• A) A high degree of labour mobility between the two countries.
• B) An increase in government spending in country A.
• C) A depreciation in the foreign exchange value of the common currency.
• D) A low degree of capital mobility between the two countries.
• E) A cut in taxes in both countries.

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Definitions:

Tangible Asset

A physical asset that can be touched and seen, such as buildings, machinery, or inventory.

Operating Cash Flow

A measure of the amount of cash generated by a company's normal business operations, indicating whether a company can maintain and grow its operations.

Net New Equity

The amount of equity capital that is generated by a company through the sale of new shares, after deducting any costs associated with issuing the new equity.

Dividends Paid

The portion of a company's earnings distributed to shareholders, usually on a regular basis.