Suppose that prices in Brazil are rising faster than US prices, and the US is a very important trading partner of Brazil. (Brazil's currency is called the real.) 

(a) Suppose the dollar/real rate is floating. What does relative purchasing power parity (RPPP) say should happen to the value of the real relative to the US dollar? Explain. (In your answer, make sure you define RPPP.) (b) Suppose the Brazilian real is pegged to the dollar. 

(i) What is happening to Brazil's REER - is the real appreciating or depreciating in real terms relative to the dollar? Explain. 

(ii) What does this imply about Brazil's international economic competitiveness? Explain

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a Relative Purchasing Power Parity RPPP is a theory that suggests that the exchange rate between two ... View the full answer