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Author Question: Why do countries who are members of a currency union have difficulty in recovering from a recession? ... (Read 56 times)

jazziefee

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on: Jun 30, 2018
Why do countries who are members of a currency union have difficulty in recovering from a recession?
 
  What will be an ideal response?

Question 2

Moving along the aggregate supply curve, when the price level rises,
 
  A) the quantity supplied decreases.
  B) the quantity supplied increases.
  C) the aggregate demand curve shifts rightward.
  D) the aggregate demand curve shifts leftward.
  E) the quantity supplied does not change because the aggregate supply curve is a vertical line.


ErinKing

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Reply #1 on: Jun 30, 2018
Answer to Question 1

Countries having a flexible exchange rate regime see their currencies depreciate during recessions and thus are able to increase net exports, stimulating the economy. This is not possible when a country is a member of a currency union unless the common currency is devalued. Therefore, these countries have difficulty recovering from recessions.

Answer to Question 2

B


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