f. A Big Mac costs 4.00 in the Eurozone and $4.84 in the U.S. The spot exchange
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f. A Big Mac costs 4.00 in the Eurozone and $4.84 in the U.S. The spot exchange rate is $1.10 per euro. What is the PPP-implied value of the $/ exchange rate based on a basket of Big Macs? Is the euro undervalued or overvalued against the dollar (and by how much)?
g. In the (flexible price) monetary model, if a country initially has a stable exchange rate and price level, but then suddenly increases its money supply growth rate by 10 % per year, what happens to its rate of inflation and rate of depreciation?
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