2159EconomicsMedium
Which of the following is a problem for fiscal policy in a currency union?
Agovernment of the member countries of the currency union may run large budget deficits and so impose costs on other countries by pushing up interest rates on the bonds these countries governments issue
BGovernment of the member countries of the currency union may run large budget deficit and so crowd out private investment
CThe central bank controls interest rates on long-term bonds issued by the governments of the member countries of the currency union
DIt is difficult to raise enough tax revenue to pay for the operation of the currency union
Correct answer
A. government of the member countries of the currency union may run large budget deficits and so impose costs on other countries by pushing up interest rates on the bonds these countries governments issue
Explanation
The correct answer is government of the member countries of the currency union may run large budget deficits and so impose costs on other countries by pushing up interest rates on the bonds these countries governments issue.