1. Suppose that over the past decade, inflation in the UK is less than that in Denmark. Further assume that during this same period, the pound depreciates relative to the Danish kroner. Given this information, (a) the real exchange rate remains unchanged. (b) the real exchange rate must decrease. (c) the real exchange rate must increase. (d) the real exchange rate can increase or remain the same, but not decrease. (e) the real exchange rate can decrease or remain the same, but not increase. [4 points] 2. For this question, assume that the Phillips curve is represented by the following equation: nit - Tit-1 = -(ut - Un). Given this information, which of the following will reduce the inflation rate by 6 percentage points? (a) a 6 percentage point increase in unemployment for one year. (b) a 2 percentage point increase in unemployment for 3 years. (c) a 1 percentage point increase in unemployment for 6 years. (d) all of the above. (e) none of the above. [4 points]