b) Monetary union

• the conditions necessary for a successful monetary union

• free movement of labour with no barriers

• the mobility of finance

• fiscal transfers

• similar trade cycles

• (monetary union)

• the free movement of labour with no barriers, the mobility of finance, and fiscal transfers are necessary as…

• substitutes for monetary policy changes during an economic recession

• the free movement of labour with no barriers substitutes independent monetary policy as…

• the unemployment rate adjusts the inflation rate

• the mobility of finance substitutes independent monetary policy as…

• foreign loans, foreign investments, and drawing down foreign assets increases AD

• fiscal transfers substitute independent monetary policy as…

• borrowing money for government expenditure increases AD

• (with reference to the Eurozone)

• the need for similar trade cycles

• during the financial crisis

  • Northern Europe experienced a temporary recession

  • while Southern Europe experienced a depression

  • so there was no sufficient monetary policy to support all members