I. True/False/Uncertain - Briefly explain. No credit without an explanation (5 marks each).

1. Labour mobility and wage/price flexibility are needed for adjustment to temporary shocks in a mone- tary union. TRUE
2. The larger the internal sovereign debt, the more likely a sovereign default in a monetary union.
3. The Lender of Last Resort (LOLR) function of the central bank poses a moral hazard risk.
4. Internal devaluation (i.e. lower wages/prices) is an alternative adjustment mechanism to an exchange rate devaluation.