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4. Use the information below to answer question 4. L M r
0.3. .1 2,000 10,000
0.x. .00 500 5,000 a. Calculate the price levels in both the U.S. and the U.K.
according to the Quantity theory of money. h. Calculate the nominal exchange rate {dollars per pound]
assuming the quantity theory of money and absolute PPP. c. Assume that the U.S. money supply rises to 2,200 in the U.S.
and to EDD in the U.K. Calculate the new nominal exchange rate. 5. Assume that the current dollar—Euro exchange rate (Bag) is
equal to l.fl5, the real exchange rate tqmmu} = 1.26, the price
level equals 1 in the U.S. and. 1.2 in Europe. .Assume that
relative PPP holds. a. If inflation is 4% in the U.S_ but 1% in Europe, what will be

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