Question 1 (15 points) Suppose the cost of the market basket is Pus = 200 dollars in the U.S. and PCN = 1400 yuan in China. Suppose the home country is China. (a) (3 points) Write the absolute purchasing power parity (PPP) equation. If PPP holds, what is the nominal exchange rate Eyuan/$? (b) (3 points) Suppose that PPP does not hold and Eyuan/$ = 6.7. What is the real exchange rate qCN/US! (c) (4 points) Suppose the speed of convergence of absolute PPP is 25%. Based on the real exchange rate you calculated in (b), what do you expect the real exchange rate to be in one year? (d) (5 points) Suppose that you predict TON = 7% and TUS = 4%. What is the expected rate of change of Eyuan/$? Is it an appreciation or a depreciation