Use the DD-AA model to examine the effects of a one-time rise in the foreign price level,

Question:

Use the DD-AA model to examine the effects of a one-time rise in the foreign price level, P* If the expected future exchange rate Ee falls immediately in proportion to P* (in line with PPP), show that the exchange rate will also appreciate immediately in proportion to the rise in P* If the economy is initially in internal and external balance, will its position be disturbed by such a rise in P*?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...