Posted: September 22nd, 2016

you are required to explain the role played by exchange rates in European business

Task 2 (LO2 AC 2.1, 2.2, 2.3, 2.4)
LO2: Understand the economic rationale underpinning the European Union (EU)

Task 2a
Productivity growth has increased in Central and Eastern European countries relative to Western European countries. This has implications for the real exchange rate. Let’s look at the Czech Republic versus France (suppose they are the only two European countries).

For your task you are required to explain the role played by exchange rates in European business.

(This provides evidence for assessment criteria 2.1)
Task 2b
The Euro is a single currency arrangement that came into theoretical operation between 11 members of the European Union in January 1999. On January 1st 2002, 12 EU members got rid of their own currencies and introduced the Euro as their sole currency. A single currency means that there are no longer separate national monetary policies, and instead a new central bank has been set up – The European Central Bank – that conducts a Europe wide monetary policy, in particular the setting of interest rates. That means a loss of separate national monetary policies – interest rates and exchange rates. Should Germany want to introduce an economic policy to fight back against unemployment, it cannot do so as this can only come from the European Central Bank.

For your task you are required to analyse the advantages attributed to the adoption of a single European currency.

(This provides evidence for assessment criteria 2.2)

Task 2c
Explain the difference between free trade and protectionism and the role played by tariffs, quotas and deregulation within the EU.

(This provides evidence for assessment criteria 2.3)

Task 2d
One of the founding principles of the European Union is the freedom of movement of workers (Article 39 of the Treaty establishing the European Community). The free movement of workers is essential for the creation of an area without internal frontiers, and for the strengthening of economic and social cohesion as well as active European citizenship in creating wealth for the economic development. Despite these obvious returns geographic and occupational mobility rates are still relatively low in the European Union, both within and between countries. For instance, on average between 2000 and 2005, workers’ mobility within EU Member States (regional mobility) amounted to only one per cent each year. This is much lower than mobility rates across Australian territories and US states, which exceed two and three per cent, respectively (Adapted from European Commission, 2007).

For your task you are required to evaluate the importance of geographic and occupational mobility in wealth creation for EU member countries.

(This provides evidence for assessment criteria 2.4)