A high degree of real wage flexibility will tend to reduce the cost to a country

Discussion Forum : Fiscal And Monetary Policy

Question - A high degree of real wage flexibility will tend to reduce the cost to a country of joining a currency union because ?

Options:

A . All of the reasons given in these answers are correct

B . real wages fall rapidly in a recession and the economy moves quickly back to long run equilibrium so limiting the duration of the recession even when

C . workers will move from a country in which aggregate demand falls to other countries of the currency union, and so unemployment remains lower than it o

D . real wages fall and so offset the inflationary effect of switching from the old currency to the new common currency

Answer: Option B
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