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In the past couple of years, there was much talk about the possibility of Greece leaving the euro zone and reinstating its earlier currency, the drachma.
A) If Greece did leave the euro zone and reinstate the drachma, what do you think the US$/drachma exchange rate would be? That is, how would it be determined?
B) Draw a graph to show how the value of the euro would be affected if Greece did leave the euro zone and reinstate the drachma. Discuss why you think it would happen the way you have drawn it – discuss what factors about the exit of Greece from the euro would appreciate the euro and what factors about the exit would depreciate the euro.
C) Should Greece have left the euro? Why or why not. Explain.
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