1. Blanchard and Johnson (2015), p. 142, question 2 (I have changed part (a) of the question)] (a) Suppose originally E = 1, P = P* = 100 and the real exchange rate is: FP* 1 x 100 = 1. P 100 Next suppose that P* increases by 5% and P increases by 10%. What is the new real exchange rate? (b) If domestic inflation is higher than foreign inflation but the domestic coun- try has a fixed exchange rate, what happens to net exports over time. Assume that the Marshall-Lerner condition holds