In an optimal currency area, similarities in the underlying structure

QUESTION

In an optimal currency area, similarities in the underlying structure of economic activity make it feasible to adopt a single currency and use a single exchange rate as an instrument of macroeconomic policy.

Indicate whether the statement is true or false.

ANSWER

TRUE
According to critics, a drawback of the euro is that the EU is not what economists would call an optimal currency area. In an optimal currency area, similarities in the underlying structure of economic activity make it feasible to adopt a single currency and use a single exchange rate as an instrument of macroeconomic policy. Many of the European economies in the euro zone, however, are very dissimilar.