Author Question: The international adjustment mechanism for flexible exchange rates is the same as for managed float ... (Read 37 times)

javeds · **on:** Jun 30, 2018

The international adjustment mechanism for flexible exchange rates is the same as for managed float regimes.

Indicate whether the statement is true or false

Question 2

One of the major political developments of the past several decades is the growing size and economic/monetary integration of the European Union. What effect do you think this will have on international trade between countries?

What will be an ideal response?

pocatato · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

FALSE

Answer to Question 2

The growing economic integration between the various countries of Europe, both the old and existing members of the European Union (EU) and the new countries joining it (including perhaps soon, Turkey), means that the barriers to trade are steadily falling in a region that has traditionally dominated world trade. The common monetary unit should in itself go far to promote inter-country trade within the growing EU (judging by the positive historical effect of a single currency in the U.S.). The standardization of transportation (including railroad gauges, highway signs etc.) and product codes will also promote expansion of intra-EU trade. The decline in the probability of political conflict associated with this comprehensive economic union, plus conscious attempts to cooperate in fiscal and monetary policy stances again point to growing international trade, allowing these countries to increasingly enjoy the fruits of potential positive scale economies, and more traditional classical and neo-classical gains from trade. The scale economies will also tend to increase trade between the EU and other countries.