"The Debate Over the Euro"

1. Read the case study "The Debate Over the Euro" and answer the following questions:
a. What is the most important cost that the European Monetary Union entails?
b. What is the advantage of the European Monetary Union?
c. How could Greece avoid its severe financial difficulties had it not been a member of the European Monetary Union? Explain clearly.
2. Suppose that a small open economy suddenly experiences a violent political upheaval. Explain what will happen to its interest rate, equilibrium nominal exchange rate, and output. Use a graph to illustrate your answer.
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