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:

Lump Sum

A one-time transaction executed at a specific moment, rather than multiple transactions spread out over a period.

Rate Of Return

The profit or loss on an investment over a specified period, expressed as a percentage of the investment's initial cost.

Retirement

The phase of life when an individual stops working full-time, typically marked by reaching a certain age or financial stability.

College Education

Attaining higher education and academic degrees from colleges or universities.