Now that France and Germany use a common currency, if there is a shift in demand away from French goods and towards German goods, then
A) employment is likely to rise in Germany but will fall in France.
B) unemployment will rise in Germany and inflation is likely to rise in France.
C) there will be no macroeconomic effects.
D) the central bank will reduce the interest rate for the common currency.

Question

Quizplus · Accepted Answer

If there is a shift in demand away from French goods and towards German goods, it means that German firms will need to produce more goods and may hire more workers to meet the increased demand. On the other hand, French firms will experience a decrease in demand and may have to reduce employment levels. Therefore, employment is likely to rise in Germany but fall in France.

Now That France and Germany Use a Common Currency, If