Monetary union

• What is a monetary union?

  Nations forming a trading block with a common currency
• What type of barriers do monetary unions adopt against non-member nations?

  Common external barriers
• What freedoms are allowed within a monetary union?

  Free movement of labor, capital, and businesses
• What three distinct features define a monetary union?

  Same currency, central bank, and monetary policy
• Which countries are part of the Eurozone?

  Seventeen nations have adopted the Euro
• What currency have Eurozone nations adopted?

  The Euro
• What governs monetary policy in the Eurozone?

  The European Central Bank
• What benefit does a non-fluctuating exchange rate provide to smaller nations?

  Greater stability and business confidence
• How does a stable currency benefit international trade?

  Easier trade due to trust in currency value
• How do consumers benefit from a single currency within a trade bloc?

  More money due to reduced currency conversion costs
• What is a benefit of countries having the same currency in trade?

  Elimination of currency conversion costs
• How does a stable currency improve business confidence?

  Easier future planning and investment decisions
• What happens to currency speculation in a monetary union?

  Less prone to speculative attacks
• What advantage do consumers gain from a single currency in comparing prices?

  Easier price comparisons between member nations
• What is a key reason why some countries avoid joining a monetary union like the Eurozone?

  Loss of monetary policy autonomy
• What is a potential problem if a nation's economic circumstances differ from others in a monetary union?

  Monetary policy may not suit them
• What monetary policy tool would the UK have been unable to use quickly if it was part of the Eurozone?

  Quantitative easing
• Why is losing control of monetary policy considered a significant disadvantage?

  Loss of key economic controls
• What potential tool is lost when a country joins a single currency regarding trade performance?

  Altering exchange rate for boosting trade
• What must countries do if they can't devalue their currency to improve trade performance?

  Look elsewhere for trade improvements
• What are the physical costs associated with adopting a new currency?

  Printing new notes and removing old ones
• What are some economic costs of changing a currency?

  Reprinting menus and setting up databases
• What could happen if a monetary union lacks a fiscal union?

  Reckless fiscal policies destabilize the union
• Which countries have adopted austerity measures due to fiscal policy issues within the Eurozone?

  Greece, Portugal, Spain, Ireland, and Italy
• What is a potential consequence of a country's reckless fiscal policy in a monetary union?

  A country may have to leave
• Who bears the burden if a nation loses fiscal control in a monetary union?

  Other nations within the Eurozone
• How could a lack of fiscal union lead to destabilization of the entire trading block?

  Countries are reckless with fiscal policy
• Which major nations might have to bail out countries in fiscal distress within the Eurozone?

  Germany and France
• Why is it important to analyze and evaluate the pros and cons of monetary unions?

  Exam questions on this are very common
• What are the pros of being part of a monetary union?

  • Non-fluctuating exchange rate promotes stability.
  • Reduced currency conversion costs for consumers/businesses.
  • Improved business confidence, greater investment.
  • Currency less prone to speculative attacks.
  • Easier price comparisons between member nations.
• What are the cons of being part of a monetary union?

  • Loss of monetary policy autonomy.
  • Inability to alter exchange rate to boost trade.
  • High costs of currency conversion.
  • Lack of fiscal union destabilizes the bloc.