According to the theory of optimum currency areas, a currency area has the least chance for success when
A) countries of the currency area have differing business cycles.
B) workers have a high degree of mobility across borders of the currency area.
C) prices and wages can be adjusted in response to economic disturbances.
D) a single monetary policy affects all member countries in the same manner.

Question

Quizplus · Accepted Answer

The theory of optimum currency areas suggests that a currency area has the least chance for success when the member countries have differing business cycles. This is because a single monetary policy, such as changes in interest rates, may have different effects on each country's economy depending on their stage in the business cycle. This can lead to asymmetric shocks that are difficult to manage with a single policy tool. Therefore, the success of a currency area depends on the degree of similarity in economic conditions among member countries. The other options, such as high worker mobility or the ability to adjust prices and wages, can actually enhance the success of a currency area by making it easier to adjust to economic disturbances.

According to the Theory of Optimum Currency Areas, a Currency