6. Consider each of the following goods and services. For each, identify whether the law of one price will hold, and state whether the relative price, 9 US/Foreign , is greater than, less than, or equal to 1. Explain your answer in terms of the assumptions we make when using the law of one price. a. Rice traded freely in the United States and Canada. b. Sugar traded in the United States and Mexico; the U.S. government imposes a quota on sugar imports into the United States c. The Mcdonald's Big Mac sold in the United States and Japan. d. Haircuts in the United States and the United Kingdom 7. You are given the following information. The current dollar-pound exchange rate is $1.5 per pound. A U.S. basket that costs $100 would cost $120 in the United Kingdom. For the next year, the Federal Reserve is predicted to keep U.S. inflation at 2% and the Bank of England is predicted to keep U.K. inflation at 3%. The speed of convergence to absolute PPP is 15% per year. a. What is the expected U.S. minus U.K. inflation differential for the coming year? b. What is the current U.S. real exchange rate qus/ux with the United Kingdom? c. How much is the dollar overvalued/undervalued? d. What do you predict the U.S. real exchange rate with the United Kingdom will be in oneyear's time? e. What is the expected rate of real depreciation for the United States (versus the United Kingdom)? f. What is the expected rate of nominal depreciation for the United States (versus the United Kingdom)? g. What do you predict will be the dollar price of one pound a year from now