If two countries A and B are member of a currency union and there is a shift in consumer preferences away from the goods of country A and towards those of country B than which one of the following would help to offset the effect of the resulting changes in aggregate demand in A and B on inflation and unemployment in the tow countries ?

A. A high degree of labour mobility between the tow countries
B. An increase in government spending in country (A)
C. A depreciation in the foreign exchange value of the common currency
D. A low degree of capital mobility between the two countries

Correct Answer: A high degree of labour mobility between the tow countries ✔

Last Updated: June 18, 2019