What are the biggest advantages the U.S. has over the EU in terms ...

[arivle123]

What are the biggest advantages the U.S. has over the EU in terms of being an Optimum Currency Area?
 
  A) low mobility of labor, higher labor productivity, lower level of intra-regional trade
  B) high unionization of U.S. Labor force
  C) high mobility of labor force, more transfer payments between regions
  D) higher uniformity of population's taste in consumption
  E) more specialized labor force and natural resource advantages

Question 2

Under floating rates, the economy is more vulnerable to shocks coming from the domestic money market. Discuss.
 
  What will be an ideal response?

[BAOCHAU2803]

Answer to Question 1

C

Answer to Question 2

The statement is true. Under floating rates, a rise in real domestic money demand causes income to fall and to an appreciation of the domestic currency. If the rise in real domestic money supply is permanent, it will lead eventually to a fall in the home price level.
Under a fixed exchange rate, the change in real money demand does not affect the economy at all. To prevent the home currency from appreciating, the central bank buys foreign reserves with domestic money until the real money supply rises by an amount equal to the rise in real money demand. This intervention has the effect of preventing any change in output or the price level.