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7a. If 1,900 Italian Lira exchange for one dollar today, and the US. annual inflation rate is 5% while the Italian annual inflation rate is

7a. If 1,900 Italian Lira exchange for one dollar today, and the US. annual inflation rate is 5% while the Italian annual inflation rate is 80%, what is the purchasing power parity rate of exchange? Is the dollar undervalued or overvalued? (6 pts)

7b. Is purchasing power parity a good measure of what the exchange rate should be? (4 pts)

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