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:

Groupthink

A mental occurrence within a group where the need for agreement or uniformity leads to a decision-making result that is illogical or not functional.

Policy Question

A question that focuses on proposed courses of action or decisions regarding public or organizational policies, often requiring analysis and deliberation.

Group Rules

Guidelines or norms established by a group to dictate behavior and ensure smooth functioning.

Norms of Behavior

Norms of behavior refer to the shared expectations and rules that guide the conduct of individuals within a group or society.