Question

Greece and Portugal have different wage rates, tax regimes, and business cycles. The two countries have also reacted differently in the past to external economic shocks.
The dissimilarities are an example of one of the drawbacks of the euro that economists refer to as the EU not being in a(n):

A. managed currency zone.
B. open exchange regime.
C. advanced monetary zone.
D. optimal currency area.
E. free trade area.

Answer 1

Answer:

The correct answer is letter "D": optimal currency area.

Explanation:

An Optimal Currency Area or OCA refers to a region that allows the establishment of a common currency for different countries that have similar economic patterns allowing them to set similar macroeconomic policies. The objective is the integration of those economies promoting growth and currency stability.

However, economic hardship in Greece put block currencies such as the euro at risk since it unbalanced the Euro weight in western Europe. The relatively recent United Kingdom auto exclusion of the European Union (EU) through the "Brexit" is also a sign that the European zone has many countries looking for different interests.