Fiscal federalism can be argued to be important in a common currency area because
A) it is likely that some member countries of the common currency area will have larger populations than others.
B) fiscal policy is needed to stabilize the economy of any of the member countries of the common currency area if and when a member country is affected by an asymmetric macroeconomic shock.
C) fiscal policy is a controversial issue.
D) central banks cannot be given responsibility for fiscal policy

Question

Quizplus · Accepted Answer

Fiscal federalism is important in a common currency area because it allows for the implementation of fiscal policies to stabilize the economy of any member country affected by an asymmetric macroeconomic shock. The central bank alone cannot always manage such shocks, and fiscal federalism provides an additional tool to maintain stability in the common currency area. Option A is not necessarily true, as population size does not necessarily have a direct correlation with the need for fiscal federalism. Option C is irrelevant to the importance of fiscal federalism. Option D is true, but not the best answer to the question.

Fiscal Federalism Can Be Argued to Be Important in a Common