1. Real Exchange Rates: Suppose that all goods are tradable. A basket of goods in the United States costs $80 and the same basket in England costs 120. The current spot rate is E$/=l .3. a. (0.5 points). Is the British pound over or undervalued relative to the US dollar? b. (0.5 points). If goods market arbitrage were to work over time and price levels in the two countries were fixed, what would we expect to happen to the spot rate over time? What would we expect to happen to the real exchange rate