How and why did Europe set up its single currency? What will ...

[notis]

How and why did Europe set up its single currency?
 
  What will be an ideal response?

Question 2

Under flexible exchange rate, the response of an economy to a temporary fall in foreign demand for its exports is
 
  A) the currency appreciates, and output falls.
  B) the currency depreciates, and output falls.
  C) the currency depreciates, and output increases.
  D) the currency depreciates, and output remains constant.
  E) the currency appreciates, and output increases.

[lorealeza]

Answer to Question 1

The why part is because large fluctuations in the exchange rates among the European countries disturbed trade. Also, one of the main reasons was to design a way to prevent future world war. The how part of the question is related to the collapse of Bretton Woods and the European Currency reform of 1969-1978. The Werner Report of 1971 establishes three-phase program to lead to the EMU.

Answer to Question 2

B