The EU Single currency
- 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 investment
- 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
- Reduced likelihood of government failure - interest rates changed for economic rather than political reasons
- Currency cannot devalue so individual countries not hit with increase in price for imported raw materials
- Reduced transaction costs
- 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
- Changing interest rates can be destabilising
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