What is moral hazard? What will be an ideal ...

[Haya94]

What is moral hazard?
 
  What will be an ideal response?

Question 2

Will the use of the euro help increase economic growth in countries in the European Union? Will it help individual countries using the euro in times of recession? Explain.
 
  What will be an ideal response?

[Ddddd]

Answer to Question 1

Moral hazard arises when one party to a contract passes the cost of his or her behavior on to the other party of the contract.

Answer to Question 2

While a common currency makes it easier for buyers and sellers to exchange goods and services across borders, a fixed exchange rate across countries in the European Union prohibits those countries from conducting independent monetary policies. If one country experiences recession, for example, fixed exchange rates will keep that country's currency value from falling, thereby exacerbating the recession. As a result, whether the euro will help to expand opportunities for economic growth will depend on which of these two effects is more significant.

[Haya94]

Excellent

[bulacsom]

TYSM