One year ago the U.S. dollar/Euro spot exchange rate was $1.1312/. Since that time the rate of inflation in the U.S. has been 2.5%, while the rate of inflation in Eurozone was only 1.5%. Based on the theory of Relative PPP, the current spot exchange rate of one U.S. dollars for Euro should be (Assume that the spot exchange rate was in equilibrium a year ago and calculate the exact number). $1.1423/ $1.4303/ None of the answers is correct $1.12027 $1.1312/ The graph below shows the spot exchange rate of the U.S. Dollar per one British Pound (thin line), as well as the presumed equilibrium exchange rate (thick line). According to the presumed (implied) equilibrium exchange rate, which of the below statements is correct? 3.50 3.00 2.50 2.00 1.50 1.00 Jan-Jan-Jan-Jan-Jan-Jan-Jan-Jan-Jan-Jan-Jan-Jan-Jan-Jan- 70 73 76 79 82 85 88 91 94 00 03 06 09 97 U.S.S/British Pound CPI Rolling Equilibrium The British Pound was undervalued in 2007 The US Dollar was overvalued in 1985 The U.S. Dollar was overvalued in 1980 The U.S Dollar was overvalued in 2007 None of the answers are correct