6. Use the information below to answer question 6.

L M Y

U.S. .1 3,000 20,000

U.K. .05 500 8,000

1. Calculate the price levels in both the U.S. and the U.K. according to the quantity theory of money.

1. Calculate the nominal exchange rate (dollars per pound) assuming the quantity theory of money and absolute PPP.

1. Assume that the U.S. money supply rises to 3,600 in the U.S. and to 600 in the U.K. Calculate the new nominal exchange rate.