Grekos Olia produces organic extra virgin olive oil that is sold for €20 per bottle ( 1 liter). Turkish Oliva makes standard olive oil that is sold for 40 Turkish lira per bottle (1 liter). The real exchange rate between Grekos and Turkish is one and a half bottles of standard olive oil for one bottle of organic extra virgin olive oil.

a. What is the nominal exchange rate between the two countries?

b. During the following year the Greece Bubble has \(1 \%\) domestic inflation and the Turkey Bubble has \(8 \%\) domestic inflation. One and a half bottles of standard olive oil still trades for one bottle of organic extra virgin olive oil. At the end of the year, what has happened to the nominal exchange rate? Which country has had a nominal appreciation? Which has had a nominal depreciation?