Suppose that the euro price of the British pound is 0.8591 According to PPP, what will...

 

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Suppose that the euro price of the British pound is 0.8591 According to PPP, what will happen to the exchange rate under each of the following circumstances (need to find the level of the new exchange rate)? In each case, which currency will appreciate and which will depreciate and by how much. (9 points: 3 points each) a) The British price level increases by 8 percent and the price level in the euro area increases by 3 percent. I b) The British price level decreases by 12 percent and the price level in euro area increases by 7.5 percent. c) The British price level stays constant and the price level in the euro area decreases by 8 percent. Good lucks Suppose that the euro price of the British pound is 0.8591 According to PPP, what will happen to the exchange rate under each of the following circumstances (need to find the level of the new exchange rate)? In each case, which currency will appreciate and which will depreciate and by how much. (9 points: 3 points each) a) The British price level increases by 8 percent and the price level in the euro area increases by 3 percent. I b) The British price level decreases by 12 percent and the price level in euro area increases by 7.5 percent. c) The British price level stays constant and the price level in the euro area decreases by 8 percent. Good lucks

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PPP and Exchange Rate Changes Assumptions Well use the initial euro price of the British pound 08591 ... View the full answer