According to Mundell, countries to constitute an optimal currency area need to satisfy one of the two conditions. Explain these conditions.

What will be an ideal response?

ANSWER:

Mundell argued these countries need to satisfy one of the two conditions: 1 ) the countries have to experience similar shocks, then they would have chosen roughly the same monetary policy; 2 ) Or, if the countries experience different shocks, they must have high factor mobility.