Question: Exercise 2 You are given the following information. The current dollar-pound exchange rate is $2 per pound. A US basket that costs $100 would cost

Exercise 2 You are given the following

Exercise 2 You are given the following information. The current dollar-pound exchange rate is $2 per pound. A US basket that costs $100 would cost $120 in the UK. For the next year, the Fed is expected to keep US inflation at 2% and the Bank of England is expected to keep UK inflation at 3%. The speed of convergence to absolute PPP is 15% per year. (b) What is the current US real exchange rate qus/UK with the UK

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