The EU Single currency

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  • Created by: sammilaw
  • Created on: 16-03-16 09:09
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  • The European Union - Single Currency
    • Chapter 19
    • Benefits
      • Reduced transaction costs
        • Increases in supply
      • Reduced exchange rate uncertainty
        • Increase trade within the EU
        • Increased confidence
          • Increased investment
            • Economic growth
      • Increased competition
        • The Euro increase price transparency = easier to compare prices
        • Increased efficiency & productivity
      • Lower interest rates
        • Reduced likelihood of government failure - interest rates changed for economic rather than political reasons
          • ECB committed to low inflation
      • Currency cannot devalue so individual countries not hit with increase in price for imported raw materials
    • Costs
      • Changing interest rates can be destabilising
        • SR trade off between reducing inflation and unemployment
      • Asymmetric policy sensitivity - different member countries would be affected differently
      • Too deflationary -  Too focused on reducing inflation that the target of 2% is too deflationary
        • Will lead to increased unemployment


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