Question: Ch 3 - # 2 ( Real Exchange Rate and PPP ) When the price of a good in the United States is $ 2

Ch3-#2(Real Exchange Rate and PPP)
When the price of a good in the United States is $2, in Spain is 2, and the nominal exchange rate is E$/=1.5, what is the real exchange rate? Does PPP hold? Is $ overvalued or undervalued? By what percent? In the long run, will $ appreciate or depreciate?
The speed of convergence to PPP is 15% per year. What do you predict the real exchange rate will be in two years time?

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