b) Monetary union

• state the conditions necessary for a successful monetary union

• free movement of labour with no barriers

• mobility of finance

• fiscal transfers

• similar trade cycles

• state why

  • 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

• state how the free movement of labour with no barriers substitutes independent monetary policy

• the unemployment rate adjusts the inflation rate

• state how the mobility of finance substitutes independent monetary policy

• foreign loans

• foreign investments

• drawing down foreign assets

• state how fiscal transfers substitutes independent monetary policy

• borrowing money for government expenditure increases AD

• explain the need for similar trade cycles with reference to the Eurozone

• 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