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a) You also have been offered a job working in Paris at EUR110,000 per year. The current exchange rate is EUR1.11/GBP. Suppose you are considering

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a) You also have been offered a job working in Paris at EUR110,000 per year. The current exchange rate is EUR1.11/GBP. Suppose you are considering working in London and have been offered GBP80,000 per year. Assume that the PPP exchange rate is EUR1.25/GBP. Suppose you are indifferent between living in London and living in Paris. i) Which offer should you take if you are considering a nave calculation to make a decision? (4 marks) ii) Which offer should you take if you are considering a PPP exchange rate to make you better off financially? (6 marks) iii) Explain the intuition behind the two measurements in both cases i) and ii). (4 marks) b) Suppose that Thailand price level is THB30,000/consumption bundle and Malaysia price level is MYR5,000/consumption bundle. Let the spot exchange rate be MYR0.14/THB. With an investment of MYR1,000,000 i) What is the internal purchasing power of MYR1,000,000 in Malaysia? (3 marks) ii) What is the external purchasing power of MYR1,000,000 in Thailand? (4 marks) iii) Explain the intuition behind the internal purchasing power and external purchasing power in both cases i) and ii). (4 marks)

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