2. (20 points) True or False. Explain your answers. a. If a country wants to peg its exchange rate above the equilibrium flexible exchange rate, it must deplete its international reserves. b. Suppose the interest rate in the US is 2 percent (i = .02), the interest rate in Europe is 4 percent (i* = .04) and the current spot rate (dollars per euro) is E = 1.1.The forward rate must be F = 1.2. c. In June the price of a Big Mac in Brazil was P = 20.90 reals; in the US it was P' = $5.71. The current spot exchange rate (reals per dollar, so Brazil is the home country) was E = 5.34. The inflation rate in Brazil was t = .0213 and in the US it was n = .01. Given this information it is reasonable to predict that the dollar will depreciate over the next year by about 1.3 percent. (Hint: Use the stylized fact that deviations from PPP dissipate at the rate of 15 percent per year.) c. A permanent increase in the level of) domestic incomel yill cause a permanent increase in the rate of appreciation of the domestic currency