Problem 7. Real Exchange Rate Consider the following information for countries A and B. 2020 Basket 2020 &/E Rate 2021 Basket 2021 &/E Rate Nominal Interest Rate Country A $560 0.8 $600 0.6 5.143% Country B 700E 1000E 40.857% (a) In nominal terms, did the exchange rate of country B appreciate or depreciate? (b) Calculate the real exchange rates for 2020 and 2021. How does appreciation/depreciation compare to part (a) in real terms? (c) Given the high inflation in country B the central bank considers to raise the nominal interest rate even further to 42.857%, while the inflation is expected to persist at its current level. How do you expect the real exchange rate to react? (Assume that the real interest rate, nominal interest rate, and inflation will remain constant in country A.)