A. (10 points)

Explain the differences between a target zone agreement and a fixed exchange rate and between a target zone agreement and a monetary union.

Provide an example of a target zone agreement, briefly explain how it ended, and why, and in particular, why it is pretty frequent for these arrangements to fail?

B. (10 points)

First, explain how a country can join the European Monetary Union. Then, explain how monetary policy is run in this currency area.