The Eu has 19 countries inside of it and they all have a fixed exchange rate to the Euro (so to speak), and to do this, they must have the same interest rate (the EU has a Central Bank that sets the interest rate for all 19 countries). The author writes that this may not be much of a problem. Why does he say this? the countries must be near in distance to one another the countries must be able to keep their own currency as well the EU must keep their currency fixed against the American dollar the countries must have similar economies that face similar macroeconomic shocks and there is labor mobility Question 12 China has a fixed rate regime. They keep their currency in terms of trade, fixed against the US dollar. So, if the US begins to raise interest rates, then what must China do and what could possible happen in their own economy? they must raise their interest rates also and this could create a recession (B) they must appreciate their currency and this could create a recession (C) they must raise their interest rates and tis could create an expansion and create inflation D they must appreciate their currency and this could create an expansion and create inflation