Explain Mundell's four conditions for adopting a single currency. ...

[justinmsk]

Explain Mundell's four conditions for adopting a single currency.
 
  What will be an ideal response?

Question 2

Suppose Paraguay can produce 12 wheat or 3 corn. Suppose Bolivia can produce 4 wheat or 2 corn. Suppose opportunity costs are constant. Given these production possibilities,
 
  A) Paraguay has a comparative advantage in wheat.
  B) Paraguay has a comparative advantage in corn.
  C) Paraguay has a comparative advantage in both goods.
  D) Paraguay has an absolute advantage in neither good.

[pocatato]

Answer to Question 1

The first condition is that the business cycle must be synchronized and national economies must enter recessions and expansions at more or less the same time, which makes similar monetary policies desirable. The second condition is a high degree of labor and capital mobility between the member countries. This allows workers and capital to leave countries or regions where work is scarce and to join the supply of labor and capital in booming regions. The third condition is that there are regional policies capable of addressing the imbalances that may develop. Depressed areas may remain depressed if people cannot move or choose not to move because the psychological or other costs are too high or resources outside the region are not available. The fourth condition is that the nations involved must be seeking a level of integration that goes beyond simple free trade.

Answer to Question 2

A