Q1.

High income: New Zealand

Upper-Middle Income: China

Please answer as per the requirements given.

Question2:

(a) Compute the average UK-US ination rate dierential (in %, per year, use the GDP deator to calculate the ination rate) and the average rate of depreciation of the British pound vs. the US dollar (in %, per year) between 1990 and 2020. Plot your observation point (a single point in the scatter plot) and the 45% degree line as in the gure above. [Hint: identify the base currency.] (

(b) Repeat the steps in question 2(a) for the high-income country and the upper-middle-income country versus the U.S., respectively. [See the following table for the two countries assigned to you.] Plot the THREE observation points (the UK and the two countries assigned to you) in a scatter plot. Do your observations contradict the predictions of the relative PPP? Why?

High income: New Zealand

Upper-Middle Income: China

Question 1. (Absolute PPP) Find the relevant data (click World Bank Open Data and/or FRED) and complete the following tasks. (a) Plot the evolution of the nominal exchange rate and the relative price levels of the U.S. versus the U.K. in 1990-2020 as in the figure above. In a separate figure, plot the evolution of the real exchange rate of USD per one British pound. Does the absolute PPP seem to hold in this case? Why? [Hint: identify the base currency, use the GDP deflator to measure the price level in each country.] (2 Marks) (b) Repeat the steps in question 1 (a) for a high-income country versus the U.S. and for a uppermiddle-income country versus the U.S., respectively. [See the following table for the two countries assigned to you. Take the currency of the high-income (upper-middle-income) Question 1. (Absolute PPP) Find the relevant data (click World Bank Open Data and/or FRED) and complete the following tasks. (a) Plot the evolution of the nominal exchange rate and the relative price levels of the U.S. versus the U.K. in 1990-2020 as in the figure above. In a separate figure, plot the evolution of the real exchange rate of USD per one British pound. Does the absolute PPP seem to hold in this case? Why? [Hint: identify the base currency, use the GDP deflator to measure the price level in each country.] (2 Marks) (b) Repeat the steps in question 1 (a) for a high-income country versus the U.S. and for a uppermiddle-income country versus the U.S., respectively. [See the following table for the two countries assigned to you. Take the currency of the high-income (upper-middle-income)