Under which of the following cases is an OCA not preferred by a home country? A)
ID: 1114423 • Letter: U
Question
Under which of the following cases is an OCA not preferred by a home country?
A) The home country faces symmetric shocks with the other country.
B) The labor market is well integrated, allowing for migration.
C) The home country faces asymmetric shocks with the other country.
D) The home economy is well integrated with the other country, carrying out vast amounts of trade.
Denmark is not a member of the Eurozone but is a member of the ERM. What are the advantages to Denmark of not being a member of the Eurozone?
A) There are none. Denmark stubbornly wants to have its own currency (the krone).
B) The Danish central bank loses its monetary autonomy by not joining the Eurozone.
C) There are not very many transactions between Denmark and Eurozone countries, so transactions gains from membership in the Eurozone would be small for Denmark.
D) The ERM allows much more exchange rate flexibility (+/– 15%) than the Eurozone.
Explanation / Answer
OCA is not preferred by a home country in the case , when the home country faces asymmetric shocks with other country.
Denmark is not a member of the eurozone but is a member of the ERM. Advantages to Denmark of not being a member of the eurozone is there are not many transactions between denmark and Eurozone countries, so transactions gains from membership in the Eurozone would be small for Denmark.
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