Define the real dollar/euro exchange rate as the ratio of the dollar price growth to the euro price growth in terms of the dollar. Let P be price index, 1 be inflation rate, and er be% change in the value of the foreign currency relative to the dollar. An equation of the real dollar/euro exchange rate is: Oq = (1 + Isy(1 + 1)(1+ep] Oq - (1 + 1/[(1 + I$)(1+0)] Oq-(1 + 1$)(1+/(1+10) Oq=(1 + 11 + ep/(1 + I$) + QUESTION 20 If the annual inflation rate is 3 percent in the United States and 1 percent in the eurozone, and the dollar depreciated against the euro by 4 percent, then the real exchange rate, assuming that PPP initially held, is O 0.9430 0.9806 1.0198 0 1.0504