Panic

Question 1

Consequences of a CA deficit

Answer 1

Weak currency

Dependence on capital account

Slow economic growth

Question 2

Consequences of a CA surplus

Answer 2

Increase (X-M), increase AD, low unemployment

Appreciation of the exchange rate

Harm international relations

Question 3

Consequences of a weak currency

Answer 3

Imports more expensive

Exports will be cheaper

Increase AD

Question 4

Consequences of a strong currency

Answer 4

Imports cheaper

Exports more expensive.

Higher unemployment

Question 5

Pros of joining Euro

Answer 5

Strong tourism (less conversion costs)

More stable

Mobility of labour

Question 6

Cons of joining Euro

Answer 6

No independent monetary policy

Can’t depreciate currency for comparative advantage

Rise prices