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Assume that that the price level in USA is $16,600, the price level in France is EUR11,750, and the spot exchange rate is $1.35/EUR. What

Assume that that the price level in USA is $16,600, the price level in France is EUR11,750, and the spot exchange rate is $1.35/EUR.

  1. What is the purchasing power of $2,500,000 in the USA?
  2. Calculate the implied absolute PPP exchange rate of US/EUR?
  3. Determine whether the euro is overvalued or undervalued relative to the US dollar?

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