Economics 286W
Honors Seminar
Spring
2002
Wednesdays 3:30-5
HRM 221
R. N. Langlois
322
Monteith X63472
Office
hours MW 1-3 or by appointment
Assignment 3
The
European Monetary Union (EMU) is made up of independent, democratically elected
governments who are held responsible by their electorates for their country's
economic well-being. The EMU has removed or reduced the economic tools usually
available to governments: monetary policy has been turned over to the European
Central Bank; the Stability Pact limits fiscal policy; and exchange rates can
no longer adjust among member countries.
With this is mind, consider the following question. Will the member
countries of the EMU face future problems when their economies move in
opposite directions -- for example, a recession in Portugal and Spain when the
other countries of the EMU are growing?
In
framing your answer, consider the following additional questions: How,
according to economic theory, can governments use macro policies to reduce recessions?
To what extent are the governments of the monetary union restricted from using
such policies to influence their economies, and why? How do other factors, such as labor mobility, wage flexibility,
and centralized fiscal policy, help economies to adjust when regions are moving
in opposite directions? How well do
these other factors function in the European Monetary Union? Does the United States, which seems to work
well as a monetary union for the 50 states, serve as a useful comparison for
the EMU? Why or why not?
Your
main reading is Jay H. Levin, A Guide to the Euro. Boston:
Houghton-Mifflin, 2002. The most
relevant part is section
5, which is available online. You
can also borrow the entire pamphlet from Rosanne (Christine is out of the
office next week) if you copy it and return it promptly. But much of the same information is
available on the web, and you can do your own research via Google or other search engines. One place to start is the European Union’s official
page on the Euro. On issues of traditional
monetary and fiscal policy, consult the textbook you used in Principles or
Intermediate Macro.
Due: March 6.
