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If the annual inflation rate is 3.5 percent in the United States and 2 percent in the U.K., and the dollar depreciated against the pound
If the annual inflation rate is 3.5 percent in the United States and 2 percent in the U.K., and the dollar depreciated against the pound by 2.5 percent, then the real exchange rate, assuming that PPP initially held, is? What can you conclude about the competitiveness of the US economy after this depreciation in dollars? (Did competitiveness improve, deteriorate or remain unchanged?) Why?
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