The Optimal Currency Area Involves a Trade-Off of Reducing Transaction

question 16

Multiple Choice

The optimal currency area involves a trade-off of reducing transaction costs but the inability to use changes in exchange rates to help ailing regions.If the US,Canada,and Mexico had one single currency (the Peso-Dollar) we would tend to see all of the following EXCEPT:

• A) Even more intraregional trade of goods across the three countries.
• B) Lower transaction costs of trading within North America.
• C) A greater difficulty in helping Mexico as you can no longer deflate the Mexican peso.
• D) Less migration of workers across the three countries.
• E) An elimination of correlated macroeconomic shocks across the countries.

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Definitions:

Freedom to Farm Act

U.S. legislation passed in 1996 that aimed to reduce government control over farming operations and allow farmers more freedom in their planting decisions.

Countercyclical Payments

Government payments made to farmers and businesses to provide financial support during periods of economic downturn.

Food-Stamp Program

A government assistance program that provides low-income individuals and families with benefits to buy food.

Farm Products

Items derived from agricultural activities, including both plant-based foods and animal products, essential for human consumption and use.